On Sunday, Nov. 30, 2008, more than 72,000 souls packed FirstEngery Stadium to watch the Indianapolis Colts defeat the Cleveland Browns 10-6. One person who wasn’t in attendance that day was Jeffrey B. Saturday, the starting center for the Colts. Saturday was injured, and instead of traveling with the team to Cleveland, the Colts had him stay in Indianapolis for physical rehabilitation.
Despite Saturday’s absence, the Colts withheld an amount of Cleveland municipal income tax from Saturday’s 2008 compensation and paid it to the city. Why would the Colts do that? Because Cleveland has a city ordinance that levies a tax on nonresident professional athletes who play a game in Cleveland.
Under the “games-played” method, the city claims the right to tax the amount of a professional athlete’s annual income that is proportionate to the share of the team’s preseason, regular season, and postseason games that were played in Cleveland.
For example, if a team played 20 games in a year, and one of those games was in Cleveland, then Cleveland would apply its tax to one twentieth of each player’s annual income.
Saturday and his wife, Karen, contended that Cleveland had no authority to impose its tax on a nonresident who did not work within Cleveland’s city limits during the taxable year.
The Saturdays requested a refund of $3,594. But the Cleveland tax authority only refunded the Saturdays $322, and denied the claim for a full refund. So the Saturdays filed an appeal to Cleveland’s Board of Review.
After a hearing, the Board upheld the denial of the Saturdays’ claim. The Board characterized Saturday’s absence from the game – and from Cleveland – as a paid sick day, which it maintained Cleveland had the authority to tax because Cleveland’s nonresident-professional-athlete regulation expressly applied the tax to games from which an athlete was excused due to “illness or injury.”
The Saturdays appealed to the state Board of Tax Appeals (“BTA”), which affirmed Cleveland’s Board of Review. After that, the Saturdays filed an appeal with us – the Ohio Supreme Court.
The evidence presented in Saturday’s case referred to the NFL collective-bargaining agreement and the individual player contracts. The submitted affidavits discussed the phases of an NFL player’s work year: the three-day mandatory mini-camp; the preseason training camp; the regular season with its work week including meetings, practices, and games; and the postseason.
Other evidence established that Saturday suffered an injury during the 2008 season that rendered him inactive for four games, including the Browns game that year.
The NFL Players’ Association affidavit stated that NFL teams require injured players to follow a rehabilitation program and that players are subject to fines for failing to attend scheduled appointments with team physicians or trainers or for failure to follow a rehabilitation program.
Saturday’s affidavit asserted that during the period of his 2008-season injury he “attended team meetings and performed physical rehabilitation,” adding that “failure to perform these services to the Colts would have subjected me to fines.” Furthermore, the Colts’ travel manifest clearly shows Saturday was not with the team in Cleveland.
Cleveland’s ordinance imposes a tax on “all qualifying wages, earned…by nonresidents of the City for work done or services performed…within the City…” Certainly none of Saturday’s work was performed in Cleveland. Nor can his work on the day of the game, or on any other day, be attributed to Cleveland, since the evidence shows that Saturday was in Indianapolis on game day, engaging in physical rehabilitation in preparation for future games.
Cleveland argued that NFL players are paid to play games, and that Saturday’s compensation related to the playing of the game in Cleveland even though he wasn’t present for it. But when the regulation is read in the context of the ordinance – “for work done or services performed or rendered within the City or attributable to the City” – then Cleveland’s reading of the regulation becomes untenable.
Saturday was performing his job duties in Indianapolis on game day. It follows that the language of the regulation – that the “entire amount of compensation earned for games that occur in the taxing community” is susceptible to municipal tax – must be construed more narrowly under the present circumstances to permit the taxation of compensation only when the player was actually present at the Cleveland game and earning compensation for his presence at that game.
The other significant passage in the regulation states that the regulation includes games the athlete “was excused from playing because of injury or illness.” Cleveland argued that because Saturday was “excused from playing,” the tax applies to him under this provision.
But this argument failed for the simple reason that nothing in the regulation addresses the additional significant fact of Saturday’s complete absence from the city of Cleveland. Had Saturday traveled to Cleveland with the team and been “excused from playing,” the language of the regulation might support imposing the tax.
But Saturday wasn’t even present at the game, and the regulation says nothing about what to do when the athlete is not even in the city where the game is being played. Thus, the regulation is at best ambiguous as to whether the tax should be levied on Saturday.
Quite simply, Saturday’s absence from Cleveland and his performance of duties elsewhere on the same day raise a strong suggestion that the imposition of Cleveland tax would constitute extraterritorial taxation – which is prohibited.
Therefore, we concluded that neither Cleveland’s municipal-income-tax ordinance nor the regulation governing its application to nonresident professional athletes authorizes the imposition of tax on Jeff Saturday’s income under the circumstances of this case.
We held – by a seven-to-zero vote – that Cleveland lacked authority to impose a tax on Saturday’s income, given that none of the services for which he was compensated were performed in Cleveland during 2008. Accordingly, we reversed the BTA’s decision. We also sent the case back with the instruction that the Saturdays be granted a full refund of Cleveland municipal income tax for 2008, along with the proper interest.
Justice Paul E. Pfeifer presides in the Court of Appeals.