Opinion
No. 90-2475
Submitted May 22, 1991 —
Decided August 14, 1991.
APPEAL from the Board of Tax Appeals, No. 88-F-207.
Thomas H. Hume, Jr. ("Hume") and Susan H. Hume, appellants, seek to deduct from their 1983, 1984, and 1985 state income tax returns compensation which Hume, formerly a professional baseball player, contends he received for performing in spring training and in exhibition games.
Hume pitched for the Cincinnati Reds from 1977 through 1985. He then played for the Philadelphia Phillies. He returned to the Reds in 1987, his last year in professional baseball.
In February 1983, he signed a Uniform Player's Contract to play for the Reds in the 1983, 1984, 1985, and 1986 seasons for $800,000 per season. According to section one of the contract:
"The Club hereby employs the Player to render, and the Player agrees to render, skilled services as a baseball player during year(s) 1983, 1984, 1985 1986 including the Club's training season, the Club's exhibition games, the Club's playing season, the League Championship Series and the World Series (or any other official series in which the Club may participate and in any receipts of which the Player may be entitled to share.)"
Under section two of the contract, the Reds promised to pay the annual salary amounts "[f]or performance of the Player's services and promises hereunder the Club will pay the Player * * * in semi-monthly installments after the commencement of the playing season covered by this contract * * *." According to Hume's agent, major league clubs pay players during the playing season because the clubs receive the bulk of their cash flow then.
Regulation six, which, under section eight, is a part of the contract, provides:
"In order to enable the Player to fit himself for his duties under the contract, the Club may require the Player to report for practice at such places as the Club may designate and to participate in such exhibition contests as may be arranged by the Club, without any other compensation than that herein elsewhere provided, for a period beginning not earlier than March 1 or ten days prior to the second Saturday in March, whichever is earlier, provided, however, that the Club may invite pitchers and catchers to report at an earlier date on a voluntary basis. The Club will pay the necessary traveling expenses, including the first-class jet air fare and meals en route of the Player from his home city to the training place of the Club, whether he be ordered to go there directly or by way of the home city of the Club. In the event of the failure of the Player to report for practice or to participate in the exhibition games, as required and provided for, he shall be required to get into playing condition to the satisfaction of the Club's team manager, and at the Player's own expense, before his salary shall commence."
Hume understood the contract required him to report for spring training and to play in the exhibition games. He concluded the Reds could fine or suspend him if he refused to report.
In the tax years under review, Hume resided in Palmetto, Florida, near the Reds' Tampa training camp. He attended training camp and participated in exhibition games, which all occurred in Florida, in each of the years. Hume did not bunk with the team but commuted from his home. He worked for the Reds the same amount of hours per day during the preseason as during the playing season and collected a per diem allowance for food and laundry during the preseason. He usually received his first paycheck on April 15, after the playing season began.
For these years, he claimed a credit on his state income tax returns for the number of days he attended spring training, participated in exhibition games, and participated in regular season away games. The Tax Commissioner audited these returns and found that the Reds paid Hume only for the playing season. She allowed credit only for Hume's participating in regular season away games.
On appeal, the Board of Tax Appeals ("BTA") affirmed the commissioner's order. The BTA concluded that the Reds did not compensate Hume for preseason training but that, instead, his failure to report for this training would affect his compensation.
This matter is before the court upon an appeal as of right.
Millikin Fitton, Michael A. Fulton and Patricia A. Reilly, for appellants.
Lee I. Fisher, Attorney General, Richard C. Farrin and Janyce C. Katz, for appellee.
R.C. 5747.02 taxes every individual residing in or earning or receiving income in Ohio. Former R.C. 5747.20(B)(1) allocated to Ohio the compensation of a nonresident:
"All items of compensation paid to an individual for personal services performed in this state who was a nonresident at the time of payment * * * shall be allocated to this state[.]"
Hume principally argues that his contract required him to participate in spring training and exhibition games, but the Reds compensated him for these services during the season. Thus, he argues, he should allocate the compensation for these services to Florida and credit this amount on his Ohio income tax return. To the contrary, the commissioner maintains that the Reds paid Hume only for the playing season because he received compensation only during the playing season. Consequently, she argues, Hume may not allocate the compensation to Florida.
Under the contract, Hume was employed for the training season, exhibition games, the playing season, and, if necessary, the League Championship Series and the World Series. Moreover, under regulation six, he had to report for spring training "without any other compensation than that herein elsewhere provided * * *." He participated in spring training and in exhibition games for the agreed annual salary; but he received payment during the playing season because the Reds did not have enough money to pay him until then.
Furthermore, he understood he had no option to condition himself on his own, and regulation six does not appear to grant him this option. According to the regulation, he must condition himself at his own expense before he receives any pay if he fails to report for spring training or participate in exhibition games, "as required and provided for."
Thus, he was compensated for the training season and exhibition games, despite receiving payment only during the playing season. Consequently, he may allocate out of state the income for services performed in Florida. See In re Petition of White (June 20, 1980), N.Y. Tax Comm. No. TSB-H-80-(93)-I, unreported; In re Petition of Richardson (June 20, 1985), N.Y. Tax Comm. No. TSB-H-85-(16)-I, unreported.
Accordingly, we hold that the BTA's decision is unreasonable, and we reverse it. We remand the case to the BTA for it to redetermine the disputed credit and account for the time Hume participated in the training season and exhibition games in Florida.
Decision reversed and cause remanded.
MOYER, C.J., SWEENEY, HOLMES, DOUGLAS, WRIGHT, H. BROWN and RESNICK, JJ., concur.