Legality of Facility Usage Fee for Out-of-State Athletes Challenged

The Pennsylvania Supreme Court heard arguments Thursday regarding the legality of Pittsburgh’s 3% facility usage tax, commonly known as the “jock tax,” levied on income earned by nonresident athletes and performers at city venues. The court’s decision could significantly impact Pittsburgh’s revenue and the broader authority of local governments to tax nonresident income.  

Key Points:

1. “Jock Tax” Challenge: Pittsburgh’s 3% facility usage tax on nonresidents is under Supreme Court review.  
2. Uniformity Clause: The central legal question is whether the tax violates Pennsylvania’s uniformity clause.
3. Financial Impact: The tax generates millions in revenue for Pittsburgh.
4. Legal Battle: Athletes and sports leagues argue the tax unfairly targets nonresidents.  

Background of the “Facility Usage Fee”

The 3% charge applies to income earned by out-of-state athletes and entertainers performing at PPG Paints Arena, PNC Park, and Acrisure Stadium. While the city initially called it a fee, it now acknowledges its legal status as a tax.  

Tax Details:

1. Applies To: Nonresident athletes and entertainers.
2. Venues: PPG Paints Arena, PNC Park, Acrisure Stadium.  
3. Official Status: Acknowledged by the city as a tax.
4. Litigation History: Challenged in court since 2019.

Athletes and Leagues Challenge the Tax

Three professional athletes, supported by the NFL, NHL, and MLB, filed suit against the tax, arguing it unfairly discriminates against nonresidents and violates Pennsylvania’s uniformity clause.  

Plaintiffs’ Arguments:

1. Discrimination: Tax unfairly targets nonresidents.
2. Uniformity Clause Violation: Claim the tax doesn’t apply uniformly.
3. Unequal Burden: Nonresidents pay 3% facility usage tax instead of the 2% school tax and 1% income tax Pittsburgh residents pay.

Lower Courts Rule Against Pittsburgh

In early 2024, the Pennsylvania Commonwealth Court affirmed a lower court ruling, declaring the tax unconstitutional. The courts found that the tax imposes an unequal burden on nonresidents compared to Pittsburgh residents.  

Lower Court Decisions:

1. Unconstitutional Ruling: Commonwealth Court upheld the lower court’s decision.
2. Discrimination Found: Tax discriminates between residents and nonresidents.
3. Unequal Burden: Nonresidents face a higher tax rate.

Pittsburgh Defends the Tax

The city appealed the ruling, arguing that the 3% facility usage tax is essentially equivalent to the local taxes paid by Pittsburgh residents. City attorney Yazan Ashrawi argued that the charge levels the playing field.

City’s Defense:

1. Equivalency Argument: 3% charge offsets taxes paid by residents.
2. Tax Credit Eligibility: Nonresidents should be eligible for a tax credit to avoid double taxation.

Athletes’ Attorneys Push Back

Attorneys for the athletes countered that the tax credit system is not accessible due to outdated city instructions and a lack of clear regulation. They also argued that the city selectively targets certain professions.

Athletes’ Counterarguments:

1. Inaccessible Tax Credit: System not user-friendly due to outdated instructions.
2. Lack of Clarity: No clear regulations for obtaining tax credits.
3. Selective Targeting: Tax unfairly targets athletes and entertainers.
4. Flawed Comparison: Nonresidents are exempt from school taxes, making comparisons with residents inaccurate.

Supreme Court Focus and Next Steps

The Supreme Court narrowed its review to the state’s uniformity clause and requested additional briefing on the city’s actions regarding tax credits since acknowledging the charge as a tax.  

Supreme Court Review:

1. Uniformity Clause Interpretation: Key focus of the review.
2. “Rough Uniformity” Question: Court will consider if strict or “rough” uniformity is sufficient.
3. Additional Briefing Requested: City must clarify steps taken on tax credits.

Financial Implications for Pittsburgh

The court’s ruling could have significant financial consequences for Pittsburgh, which projects over $6 million in revenue from the tax in its 2025 budget. Striking down the tax could necessitate refunds and create budgetary challenges.

Potential Financial Impact:

1. Revenue Loss: Over $6 million projected for 2025 at risk.
2. Refund Obligations: City may need to refund past tax payments.
3. Budgetary Challenges: Existing financial pressures could be exacerbated.

Future Implications

The Supreme Court’s final decision is expected to set a precedent for how Pennsylvania municipalities can tax nonresident professionals. Both sides are preparing for the next phase of legal arguments.

Broader Impact:

1. Precedent Setting: Ruling will influence taxation of nonresident professionals in Pennsylvania.
2. Ongoing Preparations: Both sides are gearing up for further legal arguments.

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