Can North Carolina collect state income tax from visiting NFL, NBA, NHL, MLB, NASCAR, and PGA athletes for the games and events they play here? And can the Department of Revenue let private tax-service companies file composite returns on behalf of the teams?

NC's Existing Tax Statutes Already Reached Visiting Pro Athletes; Game or Duty-Day Apportionment Needed by Rule (NC AG, December 8, 1994)

Plain-English summary

By 1994 the "jock tax" had become a national trend. Several states had enacted explicit nonresident-athlete withholding statutes, and big sports leagues (NFL, NBA, NHL, MLB) were sorting out compliance across thirty-plus jurisdictions. NASCAR and the PGA Tour added complexity: a single Charlotte race or Wilmington tournament could generate substantial prize money for hundreds of nonresident drivers and golfers.

The NC Department of Revenue asked the AG three questions:

1. Do existing NC statutes reach these income streams? Yes. N.C.G.S. § 105-134(2) taxes every nonresident "deriving income from a business, trade, profession or occupation carried on" in North Carolina. That language covered team athletes who play games in NC and self-employed athletes (NASCAR drivers, PGA pros) who collect prize money for NC events. The withholding statutes in § 105-163 and § 105-163.1 already required visiting employers to withhold NC income tax on wages paid for services performed in NC. The statutory definition of "employee" (per § 105-163.1(4)) was an individual "who performs services in this State for wages," regardless of residency. So the statutory framework was in place; what was missing was a workable apportionment formula. The Secretary needed to promulgate regulations specifying a "game" or "duty-day" basis for calculating the NC-attributable portion of a team athlete's salary.

2. Can DOR contract with a private company like Team Tax for composite filings? No. Existing statutes did not authorize the Secretary to contract with private-sector entities for tax administration. Section 105-268.1 allowed agreements with the federal government and other states, but did not extend to private companies. Two further problems: (a) the proposal raised serious confidentiality concerns about taxpayer information shared with a private contractor, and (b) the NC Constitution Art. V § 2(1) prohibits the state from "surrendering or contracting away the power of taxation." Even with specific authority, the Secretary would have to retain the right to audit and challenge any data the private company submitted. Express legislative approval would be required.

3. Can the Secretary administratively exempt classes of nonresident athletes or entertainers? No. The NC Constitution Art. V § 2(2) requires the income tax to apply uniformly. Hajoca Corp. v. Clayton extended the uniformity rule to trades and professions. The Secretary lacked administrative authority to exempt classes of persons or professions from the income tax. Any exemption would have to come from the General Assembly, and even then would have to bear "some rational relationship to a conceivable legitimate interest of government" (In re Village Publishing).

The AG closed by reminding DOR that the constitutional limit on NC's taxing power over nonresidents (under Shaffer v. Carter) restricts the tax to property, trades, and professions carried on in the state, and to income derived from those sources. So any regulation had to apportion fairly: a NASCAR driver who raced one weekend at Charlotte Motor Speedway could be taxed only on the portion of his annual income attributable to that NC duty. An apportionment that swept in his full season would be unconstitutional.

Currency note

This opinion was issued in 1994. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. NC tax statutes governing nonresident income, withholding obligations, and apportionment for professional athletes have been substantially revised since 1994. Many states adopted "jock tax" statutes or regulations in the years that followed, and NC's framework today reflects those developments. A current tax-compliance question for a visiting team or athlete should be analyzed under current statute and DOR regulations.

Background and statutory framework

The 1994 question reached the AG at a time when state revenue departments were collectively waking up to the size of the nonresident-professional-athlete tax base. Major-league salaries had grown rapidly through the 1980s and early 1990s, and the per-game income of star players in big-market sports could exceed $50,000 to $100,000. A 41-game NBA road schedule, an 81-game MLB road schedule, or eight NFL road games meant substantial wages earned in many different jurisdictions. States that did not collect those taxes were leaving money on the table.

The legal architecture for taxing nonresident athletes was straightforward in principle but tricky in execution.

The substantive tax (§ 105-134). NC taxed every nonresident "deriving income from a business, trade, profession or occupation carried on" in the state. Team athletes performed services for their employer (the team) at locations across the country. When the team played in Charlotte, the player performed services in NC for wages, and the portion of his salary attributable to that performance was NC-source income. Self-employed athletes (PGA pros, NASCAR drivers) earned prize money from NC events, and the prize money was likewise NC-source income.

Withholding (§ 105-163). Employers paying wages to NC-performing employees had to withhold NC income tax. The definitions in § 105-163.1 read broadly: an "employee" was anyone performing services in the state for wages, regardless of residency; an "employer" was anyone for whom such services were performed. NC adopted the federal definition of "wages" (which is itself broad). A nonresident employer's compliance with the NC withholding statute did not, by itself, constitute "doing business" in NC for other purposes (§ 105-163.2(h)).

The apportionment problem. The statutory framework was clear that NC could tax a percentage of a team athlete's income, but it was not clear how that percentage was to be calculated. The conventional answers in 1994 were:

• Games-played method (Massachusetts approach): The NC-attributable share equals (NC games / total games) × salary. Simple and predictable, but ignores practice time, travel, and other duty days.
• Duty-day method (California approach): The NC-attributable share equals (NC duty days / total duty days) × salary. Duty days include practices, travel days, training camp, mandatory team appearances, and games. Closer to the actual labor performed in the state, but harder to track.

The AG cited Hellerstein's leading state-taxation treatise (Vol. II, ¶ 20.05[4]) for both approaches. The AG also noted Connecticut's recently promulgated regulations distinguishing team athletes from individual-sport athletes (relevant to NASCAR and PGA).

The AG's view: the apportionment was a regulatory question to be answered by the Secretary, not a statutory gap requiring legislation. Section 105-134 already authorized the tax; § 105-163 already authorized the withholding. The Secretary just needed to promulgate apportionment rules consistent with the constitutional limit identified in Shaffer v. Carter (taxing only income fairly attributable to NC).

The "Team Tax" composite-filing proposal. Major leagues had begun exploring centralized tax-compliance arrangements. Team Tax was one such private contractor: it would coordinate with state taxing authorities to compile data, prepare W-2s, maintain payroll records, and file composite returns for multiple teams and players in a single submission. The administrative efficiency was real (each state would receive consolidated data rather than dozens of individual filings), but the proposal raised three concerns.

First, NC's authorizing statute for the Secretary to enter into tax-cooperation agreements (§ 105-268.1) covered only federal-government and other-state taxing authorities. It said nothing about private contractors. The AG read that omission as a deliberate limit on the Secretary's contracting power in this domain.

Second, the proposal raised "secrecy problems." Taxpayer information shared with a private contractor risked confidentiality breaches and operated outside the statutory protection schemes that applied to government tax administrators.

Third, the proposal represented "a marked philosophical shift" in tax administration. Delegating compliance to a private third party crossed a line that ordinarily called for express legislative consideration. The AG recommended that the Department return to the General Assembly for express authorization before agreeing to such an arrangement.

The AG also flagged the deeper constitutional limit: Art. V § 2(1) bars the state from "surrendering or contracting away the power of taxation." Even with specific legislative authorization, the Secretary would have to retain the substantive right to audit and challenge data submitted through any composite-filing arrangement. The state cannot delegate its core taxing authority.

The uniformity question. Article V § 2(2) of the NC Constitution requires the income tax to apply uniformly. Hajoca Corp. v. Clayton (1970) extended the uniformity rule to taxes on trades and professions. The 1984 Village Publishing case held that any classification within the income-tax scheme must bear a rational relationship to a legitimate government interest.

The Secretary could not, by regulation alone, exempt classes of athletes or entertainers from the income tax. Doing so would violate uniformity. If, for example, NASCAR drivers thought the apportionment formula treated them unfairly compared to team athletes, the remedy was either legislative amendment or a constitutional uniformity challenge in court, not unilateral DOR exemption.

Common questions

Did this opinion authorize NC to start collecting jock taxes immediately?

The substantive tax authority was already in place under § 105-134; the withholding obligation was already in place under § 105-163. The opinion confirmed that visiting teams and athletes were already subject to those obligations. What needed to be done was for the Secretary to promulgate apportionment regulations so teams could calculate the right NC share. Enforcement against teams not yet complying would require either rule-based notice of the apportionment formula or a per-case factual determination.

Could a team protect itself by filing under California's duty-day rule instead of waiting for NC rules?

A team filing in good faith using a recognized apportionment methodology would have a reasonable basis. If the team applied a method that did not over-include NC, the worst case was that the Department might assert a different method on audit. The team's exposure would be the difference in apportionment, not the entire tax.

What about NASCAR drivers and PGA golfers? Are they "employees" or independent contractors?

The opinion treated them as self-employed nonresident professionals whose prize money from NC events was business or professional income reportable under § 105-152. The withholding statute (which applies to employer-employee relationships) would not apply to a self-employed driver or golfer; instead, the driver/golfer files an NC annual return and pays NC tax on the NC-attributable portion of his self-employment income. The opinion specifically noted that monetary prizes to stock car drivers and golfers constituted reportable business or professional income.

Why couldn't the Secretary just contract with Team Tax to handle compliance?

Two reasons. (1) The Secretary's contracting authority under § 105-268.1 was limited to the federal government and other state taxing authorities; it did not extend to private contractors. (2) Even with specific authorization, the constitutional prohibition on "surrendering or contracting away the power of taxation" (Art. V § 2(1)) required the Secretary to retain core audit and challenge authority over any private-sector data submission. The AG recommended that the legislature, not the Department, decide whether to authorize such arrangements.

Could the General Assembly enact an "entertainment industry exemption" if it wanted to?

In principle yes, but the exemption would have to satisfy the uniformity clause (Art. V § 2(2)) and bear "some rational relationship to a conceivable legitimate interest of government" (Village Publishing). A carefully drafted exemption (for example, to attract major sporting events) might survive uniformity review; an arbitrary carve-out for one team or league would not. The opinion did not opine on what specific exemptions might pass muster.

Did this opinion address the constitutional limit on NC taxing nonresidents?

Yes, briefly. The opinion cited Shaffer v. Carter (U.S. Supreme Court 1920) for the rule that a state's taxing power over nonresidents reaches "property, trades and professions carried on within the jurisdiction, and the tax is only on such income as is derived from those sources." The apportionment regulations had to track that constitutional limit: NC could not tax a player's full season just because he played one game in Charlotte.

Source

• Landing page: https://ncdoj.gov/opinions/taxation-of-nonresident-professional-athletes-withholding-upon-wages-and-salaries/

Citations

• N.C. Gen. Stat. § 105-134 (nonresident income tax)
• N.C. Gen. Stat. § 105-152, 155 (returns and filing)
• N.C. Gen. Stat. § 105-163 (withholding requirements)
• N.C. Gen. Stat. § 105-163.1 (definitions: employee, employer, wages)
• N.C. Gen. Stat. § 105-163.2(h) (nonresident employer withholding compliance)
• N.C. Gen. Stat. § 105-268.1 (interstate and federal tax-cooperation agreements)
• N.C. Const. Art. V, § 2(1) (no surrender of taxing power)
• N.C. Const. Art. V, § 2(2) (uniformity of income tax)
• Shaffer v. Carter, 252 U.S. 37 (1920)
• Hajoca Corp. v. Clayton, 277 N.C. 560 (1970)
• In re Assessment of Taxes Against Village Publishing Corp., 312 N.C. 211 (1984)
• II J. Hellerstein and W. Hellerstein, State Taxation, ¶ 20.05[4] (1992)

Original opinion text

1. Are present laws adequate to tax nonresident athletes upon income earned within North Carolina, and to require "withholding" by their employers, where employee-employer relationships exist?

Yes. G.S. § 105-134(2) in pertinent part taxes every nonresident "deriving income from a business, trade, profession or occupation carried on" in North Carolina. The statute applies to nonresident team athletes who receive wages as employees as well as self-employed athletes who receive compensation from single athletic events in which they participate in North Carolina. Monetary prizes awarded successful stock car drivers and golfers constitute business or professional income which recipients must report to the Department of Revenue upon their annual returns pursuant to G.S. §§ 105-152 and 155.

North Carolina's withholding laws apply to salaries paid nonresident professional athletes. G.S. § 105-163(2)(a) requires employers to deduct and withhold from wages of employees North Carolina income taxes payable by the employee on the wages. An "employee" is an individual, regardless of residency, "who performs services in this State for wages," and an "employer" is "a person for whom an individual performs services for wages." G.S. § 105-163.1(4) and (5). North Carolina adopts the federal definition of the term "wages," and as expected, the definition is expansive. G.S. § 105-163.1(15). A nonresident employer's compliance with North Carolina withholding responsibilities "is not deemed to be evidence that such nonresident is doing business in this State." G.S. § 105-163.2(h).

The statutory scheme unambiguously requires professional teams visiting North Carolina for games and events to withhold taxes upon compensation paid their employees. Current statutes set forth specific tables for determining proper withholding amounts. However, they may not provide the most appropriate methods for calculating withholding for nonresident team athletes since only a portion of their income is reportable to North Carolina. Consequently, it would be appropriate for the Secretary to administratively promulgate regulations specifically prescribing the basis for compliance with withholding requirements, such as upon a "game" or "duty-day" basis.

For instance, Massachusetts taxes nonresident athletes in part upon a "games played" basis, while California utilizes a "duty day" formula. II J. Hellerstein and W. Hellerstein, State Taxation, ¶20.05[4], pp. 20-15/20-18 (1992). Recently promulgated regulations from the Connecticut Department of Revenue distinguish between professional athletes who are members of a team, and athletes and entertainers who receive income from services performed in the state. CCH, "State Tax Review," Vol. 55, No. 45 (7 November 1994).

Regulations must be carefully drawn so as to extend to only income fairly apportioned to North Carolina. A state's taxing power over nonresidents is restricted to property, trades and professions carried on within the jurisdiction, "and the tax is only on such income as is derived from those sources." Shaffer v. Carter, 252 U.S. 37, 57 (1920).

2. May the Department of Revenue without specific legislative approval enter into agreements with third parties providing for the filing of composite tax returns and reports on behalf of professional teams and individual athletes?

No. Some professional sports leagues have tentatively engaged a private entity, "Team Tax," to coordinate with affected states for purposes of compiling tax data on behalf of teams and players for filing with taxing officials. Team Tax on a state by state basis would file withholding reports, prepare W-2 forms and maintain payroll and wage records. The company would submit composite returns which would reflect on a single report pertinent data for many taxpayers, individual and corporate.

Although these activities appear worthwhile, existing statutes do not authorize the department to engage in such undertakings. While G.S. § 105-268.1 enables the Secretary to enter into agreements with the federal government and other states in order to coordinate and collect taxes, the law is conspicuously silent as to the Secretary's ability to contract with non-public, private sector bodies. The proposal is fraught with secrecy problems, and its alliance with private enterprise represents a marked philosophical shift with respect to tax administration. We recommend express legislative approval.

Even with specific authority, the Secretary must under all circumstances ultimately reserve the right to audit and challenge the correctness of any tax data tendered. The Constitution of North Carolina, Art. V, Sec. 2(1), prohibits the state from surrendering or contracting away the power of taxation.

3. May the Secretary exclude classes of nonresident athletes and entertainers from the income tax?

No. The constitution also requires that the income tax be applied uniformly. N.C. Const., Art. V, Sec. 2(2). Hajoca Corp. v. Clayton, 277 N.C. 560, 568 (1970) (rule of uniformity applies to trades and professions). Administratively, the Secretary is not empowered to exempt classes of persons or professions from the scope of the income tax. Any deviation from the levy would need to emanate from the legislature, and such a preferential classification would need to bear "some rational relationship to a conceivable legitimate interest of government." In re Assessment of Taxes Against Village Publishing Corp., 312 N.C. 211, 221 (1984). Until directed otherwise by the General Assembly, the department must enforce the income tax against all persons deriving income from trades and occupations carried on in the State. G.S. § 105-134.

We hope the foregoing provides assistance.

Reginald L. Watkins
Senior Deputy Attorney General

George W. Boylan
Special Deputy Attorney General