HARRISBURG – The Commonwealth Court of Pennsylvania has near-unanimously ruled to uphold a lower court’s 2022 summary judgment ruling that the City of Pittsburgh’s “jock tax” applied to both resident and non-resident athletes is unconstitutional.
In a Jan. 10 opinion, a 6-1 majority complement of the appellate court seconded the earlier ruling, which found as faulty the City’s argument that because it financed the construction of its major sports stadiums through taxpayer funds, it had the right to tax the individuals using the facilities in order to get its money back.
The National Hockey League Players Association, Major League Baseball Players Association and National Football League Players Association – along with former Pittsburgh Penguins forward Scott Wilson, New Jersey Devils forward Kyle Palmieri and veteran former baseball player Jeff Francoeur – initially filed suit in the Allegheny County Court of Common Pleas on Nov. 5, 2019 against the City.
The so-called jock tax is a three percent income tax on visiting professional athletes and those who live outside Pittsburgh as a “non-resident facility usage fee” for major sports venues that are publicly funded in the City: PNC Park (Pittsburgh Pirates), Heinz Field [now known as Acrisure Stadium] (Pittsburgh Steelers) and PPG Paints Arena (Pittsburgh Penguins).
However, residents of Pittsburgh who access and use the facilities only pay a one percent income tax.
This was the major objection of the lawsuit, as it labeled the taxes “unconstitutional.”
The plaintiffs cited the Pennsylvania Constitution’s provision that all taxes be “uniform,” arguing the City can’t levy different taxes on residents and non-residents, and furthermore, cite the U.S. Constitution’s text which “prohibits states and municipalities from establishing conditions on professional work that are more burdensome for non-residents than they are for residents.”
Wilson, who worked under a two-year deal with the Buffalo Sabres worth $2.1 million, paid a $6,000 tax to Pittsburgh in 2016.
Palmieri, in the middle of a five-year, $23 million contract with the Devils, paid $1,900 to the City in 2016.
Finally, Francoeur, who made $1 million playing for the Atlanta Braves in 2016, paid $800 of that sum to Pittsburgh that same year.
Lawyers for the players have successfully overturned similar taxes in other states, such as Ohio and Tennessee.
“The City of Pittsburgh, through its taxpayers, financed large portions of the facilities utilized by the plaintiff. Accordingly, it is reasonable for the City to seek remuneration for those expenditures, from the individuals who utilize the facilities,” according to a Jan. 21, 2020 answer in the litigation from the City Solicitor Yvonne S. Hilton and Associate City Solicitor, Michael E. Kennedy.
Hilton and Kennedy had referred to the City’s tax structure as “appropriate and legal” under state and federal law and added the non-individual plaintiffs lack standing to pursue their claims. Additionally, the City officials believed the objecting plaintiffs did not pursue the matter in a timely fashion.
“To the extent that discovery reveals that any of the plaintiffs have failed to act in a timely basis, defendant asserts the appropriate statute of limitations as a defense,” Hilton and Kennedy said.
Former Pittsburgh Mayor Bill Peduto once explained the rationale behind the tax created in 2005, during a time when the City was enduring difficult financial straits.
“The stadiums themselves have been paid for by taxpayers. They use them as their place of work. There was a way we felt that some of that money could be recouped for the public,” Peduto stated.
Jay K. Reisinger, a partner at Pittsburgh-based Farrell Reisinger & Comber who manages the firm’s sports law practice and has extensive experience representing professional athletes, previously told the Pennsylvania Record that the tax is unconstitutional.
“In my opinion, it’s long overdue. Professional athletes, not just in Pittsburgh but in other jurisdictions, have been singled out for a so-called use tax or a licensing fee, etc., so that local municipalities that have stadiums and professional teams can charge those players,” Reisinger said.
“Everybody knows where the Steelers are playing, but you don’t know what lawyers from New York are coming into Pittsburgh to work there and earn money, that aren’t paying the same tax. So, what’s the difference? The difference is you can actually figure out where these [athletes] are, where they play and where they earn money.”
Plaintiff counsel filed a motion for summary judgment on Jan. 28, 2022, arguing that the tax in question violated both the Pennsylvania Constitution and the U.S. Constitution.
“Professional athletes pay state and local taxes throughout the country, understanding and satisfying their obligation to do so in each and every place the taxing authority has abided by the constitutional and statutory limits placed on its authority. Here, however, the City has exceeded those limits. The City’s facility fee is clearly a tax, designed to generate revenue and address a budget hole left by the City’s phasing out of a different tax,” the motion stated, in part.
“When properly considered as a tax, the facility fee must comply with the Uniformity Clause of the Pennsylvania Constitution, which requires that ‘all taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.’ It does not. The facility fee – whether or not it is a tax – must also comply with the relevant provisions of the United States Constitution, specifically the Privileges and Immunities, Due Process and Dormant Commerce Clauses. It does not. And finally, the facility fee must comply with the statutory requirement to follow the Department of Revenue’s Tax Guide. It does not.”
Allegheny County Court of Common Pleas Judge Christine A. Ward sided with the players on Sept. 21, 2022 and concurred that the figurative playing time of the “jock tax” had come to an end.
Ward found that the money “raises revenue for general purposes, it assesses a ‘fee’ against taxable income and the legislative purpose specifically mentions a goal in reducing a different tax.” The judge remarked, “The facility fee is a tax in function and should be recognized as such.”
“The facility fee is facially discriminatory, as it levies a three percent income tax against non-residents in comparison to a one percent income tax on residents, and there are discriminatory tax rates across the same occupation. Defendants assert that even if the fee were found to be a tax, it would be permissible as both residents and non-residents pay the same effective tax rate. Pittsburgh residents pay a two percent income tax towards Pittsburgh school districts, in addition to the one percent statutory tax on income by the city. However, defendants’ assertion is in error, and this does not remedy the difference in rates,” Ward stated.
“The two percent school tax is levied by the school board, not the city, and directly funds the schools whereas revenue from the facility fee is paid into the general fund. Defendants cannot find uniformity where a separate entity taxes residents for a separate purpose. Similarly, while Pittsburgh athletes pay a one percent tax on their income to the City, other Pennsylvania athletes pay a three percent tax on their income due to the facility fee. There is no permissible or rational basis for an unequal application of tax rates across residents and non-residents, and unequal application of tax rates across the same profession. With no rational basis for this discriminatory practice, the facility fee is a clear violation of the Uniformity Clause of the Pennsylvania Constitution.”
UPDATE
The City appealed to the Commonwealth Court on Oct. 19, 2022 – arguing that the Allegheny County Court of Common Pleas erred in finding the jock tax violated the Pennsylvania Constitution’s Uniformity Clause; erred in finding that the measure was unconstitutional on its face and as applied to plaintiffs and all non-resident professional athletes; erred in barring any action by the City to assess, impose or collect the fee, and erred in not severing the alleged unconstitutional portions of the fee ordinance.
However, the Commonwealth Court, in a majority opinion authored by Judge Ellen Ceisler, upheld the original court ruling which found the jock tax was unconstitutional.
“Although the parties agree that the facility tax is a tax, there is no evidence to suggest that non-residents can offset the amount of the facility tax by the amount of earned income tax (EIT) paid to another taxing authority. Even if this Court were to assume that one percent of the facility tax represents the one percent EIT imposed on non-residents prior to the enactment of Section 271.03(a) of the ordinance, the facility tax otherwise burdens non-residents with an additional two percent tax on earned income that is not assessed on residents. The two percent school tax paid by residents is not relevant to our analysis, as the District is prohibited from imposing school taxes on non-residents, per Section 652.1(a)(4) of the School Code,” Ceisler said.
“The City has not suggested that the school taxes paid by residents offset the cost of maintaining the facilities, the use of which clearly benefits residents who earn income in those facilities. If we exclude the two percent school tax from our analysis, it is clear that the City has effectively imposed a three percent EIT on non-residents who derive income from the City’s facilities, while imposing a one percent EIT on residents who similarly derive income from the facilities. The City has failed to provide the requisite concrete justification for treating residents and non-residents as distinguishable classes that may be subjected to different tax burdens. Rough uniformity is not achieved where only one class of taxpayers – non-residents – is assessed a two percent tax on income derived from its use of the facilities. Accordingly, we conclude that the facility tax violates the Uniformity Clause.”
Ceisler added that the trial court did not err in enjoining the City from imposing and collecting the facility tax, as striking the word “non-residents” from Section 14 271.03(a) of the ordinance would expand the scope of [the measure] beyond that intended by the General Assembly.”
In a lone dissent from the remainder of her colleagues, Commonwealth Court Judge Renée Cohn Jubelirer said, “Because I believe, in substance, the City has treated residents and non-residents alike with respect to their respective tax burdens, I must respectfully dissent from the majority’s scholarly opinion concluding that the tax at issue in this case violates of the Uniformity Clause.”
The plaintiffs are represented by Scott R. Leah of Tucker Arensberg in Pittsburgh, plus Stephen W. Kidder, Ryan P. McManus and Michael P. Moore Jr. of Hemenway & Barnes, in Boston.
The defendants are represented by City Solicitor Yvonne S. Hilton and Associate City Solicitor Michael E. Kennedy, also in Pittsburgh.
Commonwealth Court of Pennsylvania case 1150 C.D. 2022
Allegheny County Court of Common Pleas case GD-19-015542
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com