New York Advisory Opinion TSB-A-95(6)I: Issue raised by Petitioner, Heath Shuler, is whether, for purposes of Article 22 of the Tax Law, he can calculate his 1994 New York source income by allocating his pre-season and regular season football wages separately, basing each on the ratio of games played in New York to games played everywhere.

Plain-English summary

Petitioner, Heath Shuler, was a Tennessee resident and rookie professional football player for the Washington Redskins during the 1994 season. In 1994 the Redskins played 4 pre-season games and 16 regular-season games; only one game — a pre-season game in Buffalo — was played in New York. Under his NFL Player Contract (an 8-season contract executed August 3, 1994) and the NFL Collective Bargaining Agreement, Shuler received a $950,000 regular-season salary paid out over the regular season, separate CBA-based pre-season pay of $500 per week, a $2,000,000 signing bonus, and $214.29 for attending the Redskins' May mini-camp before his contract was signed. He asked whether he could compute his 1994 New York-source income by allocating his pre-season pay and his regular-season salary as two separate pools, each using its own ratio of games played in New York to games played everywhere.

The Department first addressed the allocation method itself. The standard days-worked formula that applies to nonresident employees generally (then 20 NYCRR § 131.18(a), now § 132.18(a)) does not produce a fair and equitable allocation for professional athletes, because an athlete's compensation is tied to games, not days on the job. Following its own prior opinion in Matter of Nathaniel and Patricia Moore (TSB-A-89(2)I) and earlier New York State Tax Commission decisions involving Roy H. and Linda White, Kareem Abdul Jabbar, and Cleon and Angela Jones, the Department held that nonresident professional team athletes must instead allocate their income from playing based on games played within versus without New York State — a rule that applies to all nonresident pro team athletes, regardless of sport and regardless of whether their team is based in New York.

On the specific question asked, the Department said no: Shuler could not split his pre-season and regular-season pay into two separately allocated pools. Under his NFL Player Contract, his "total compensation for the performance of services" was a single package under one 8-season, year-by-year contract — his regular-season salary and his CBA-based pre-season pay were both compensation for playing under that same contract. The fact that the contract happened to pay the pre-season money during the pre-season and the regular-season salary during the regular season was, in the Department's words, "irrelevant" to the allocation. So his total 1994 compensation for playing (pre-season pay plus regular-season salary) had to be pooled together and allocated using a single fraction: the 1 game played in New York (the Buffalo pre-season game) out of the 20 total games played that year.

The Department analyzed two other payments separately from that games-played pool. It found there were not enough facts to decide the signing bonus's New York allocability in general, but it set out the controlling test from Matter of Gordon Clark v NYS Tax Comm'n: if a signing bonus is payable separately from salary and other contract compensation, is nonrefundable, and its payment does not depend on the player actually playing any games or even making the team, then it is not connected with the later performance of the contract in New York and is not allocable as New York-source income at all. And the $214.29 mini-camp payment was held not to have been paid under the NFL Player Contract (which was not executed until August 3, 1994, after the May mini-camp), so it is not compensation allocable as New York-source income under Tax Law § 631(c) either.

The opinion also flags that, going forward, a new regulation — 20 NYCRR § 132.22, effective for taxable years beginning on or after January 1, 1995 — sets out prescribed rules for allocating nonresident professional athletes' compensation, codifying (for 1995 and later years) the games-played approach this 1994-year opinion worked out from case law.

What this means for you

Nonresident professional athletes playing for a team not based where they live

If you are a nonresident professional team athlete, your New York-source income from playing is not calculated using the ordinary days-worked formula that applies to most nonresident employees. Instead, it is calculated using the ratio of games your team played in New York to the total games your team played that year. If your contract pays you different amounts at different points of the season (for example, separate pre-season pay and regular-season salary), that split in payment timing does not, by itself, let you allocate those amounts separately — if both are compensation "for performance of services" under the same contract, they get pooled into one games-played fraction. A true signing bonus can be treated differently, but only if it is genuinely separate from your salary, nonrefundable, and not conditioned on your actually playing or making the team.

Team payroll and accounting staff, and tax preparers handling athlete allocations

When preparing a nonresident athlete's New York nonresident return, first identify which payments are compensation "for performance of services" under the player contract (regular-season salary, contractually-tied pre-season pay, etc.) — these must be pooled and allocated together using one games-played-in-New-York over total-games-played fraction, regardless of when in the season each piece is actually disbursed. Separately, examine any signing bonus against the Gordon Clark test (paid separately from salary, nonrefundable, and not conditioned on playing or making the team) to determine whether it escapes the games-played allocation entirely rather than simply being allocated using the $0-in-New-York fraction. Payments made before the player contract is signed (such as a mini-camp stipend paid under a separate arrangement) fall outside the player-contract allocation altogether. Note also that current allocations for professional athletes are now governed by 20 NYCRR § 132.22, adopted for taxable years beginning on or after January 1, 1995, which codified this games-played approach.

Common questions

Q: Why do nonresident professional athletes use a games-played allocation instead of the standard days-worked formula other nonresident employees use?
A: The Department concluded that the days-worked formula in 20 NYCRR § 132.18(a) does not produce a fair and equitable allocation of income earned by a professional athlete for services rendered as such, so — following Matter of Nathaniel and Patricia Moore (TSB-A-89(2)I) and earlier Tax Commission decisions (White, Abdul Jabbar, Jones) — athletes instead allocate based on games played within versus without New York.

Q: Could Shuler allocate his pre-season pay and his regular-season salary separately, each using its own games ratio?
A: No. Under his NFL Player Contract, both amounts were "total compensation for the performance of services" under one 8-season contract; the fact that the contract paid the pre-season amount during the pre-season and the regular-season salary during the regular season was irrelevant. Both had to be pooled and allocated together using one fraction: 1 New York game out of 20 total games played in 1994.

Q: Does this games-played rule apply only to football, or only to nonresident athletes on out-of-state teams?
A: The opinion states the rule applies to all nonresident professional team athletes regardless of the sport they play and regardless of whether their team is based within New York or outside New York.

Q: Is a signing bonus always allocated using the games-played fraction along with salary?
A: Not necessarily. If the signing bonus is payable separately from salary and other contract compensation, is nonrefundable, and its payment does not depend on the player playing any games or even making the team, it is not connected with the subsequent performance of the contract in New York and is not allocable as New York-source income at all (Matter of Gordon Clark v NYS Tax Comm'n). The opinion did not decide whether Shuler's bonus met this test because it lacked sufficient facts.

Q: What happened to the $214.29 Shuler received for the May mini-camp?
A: It was held not to be compensation allocable as New York-source income under Tax Law § 631(c), because it was not paid pursuant to the NFL Player Contract (which was not executed until August 3, 1994, after the mini-camp) for services rendered under that contract.

Q: Does this 1994-year opinion still describe the current allocation rule for professional athletes?
A: The games-played analysis in this opinion was developed from case law for the 1994 tax year. For taxable years beginning on or after January 1, 1995, a new regulation, 20 NYCRR § 132.22, sets out prescribed rules for allocating nonresident professional athletes' compensation, codifying this approach going forward.

Citations and references

• Tax Law § 631(c) - New York source income of a nonresident carrying on a business, trade, profession or occupation partly within and partly without New York State is determined by apportionment and allocation under regulations
• 20 NYCRR former § 131.18(a), now § 132.18(a) - standard days-worked allocation formula for nonresident employees generally
• 20 NYCRR former § 131.23, renumbered § 132.23 and then (on and after January 1, 1995) § 132.24 - fair-and-equitable allocation standard, and the procedure for a nonresident to propose an alternative allocation method
• 20 NYCRR § 132.22 - new regulation, effective for taxable years beginning on or after January 1, 1995, prescribing rules for allocating nonresident professional athletes' compensation
• Matter of Nathaniel and Patricia Moore, TSB-A-89(2)I (Feb. 14, 1989) - days-worked allocation does not fairly and equitably allocate a professional athlete's income
• Matter of Roy H. and Linda White, TSB-H-80(93)I (Feb. 14, 1979) - New York State Tax Commission decision applying games-played allocation
• Matter of Kareem Abdul Jabbar, TSB-H-82(76)I (Apr. 9, 1982) - New York State Tax Commission decision applying games-played allocation
• Matter of Cleon Jones and Angela Jones, TSB-H-85(33)I (Feb. 6, 1985) - New York State Tax Commission decision applying games-played allocation
• Matter of Gordon Clark v NYS Tax Comm'n, 86 AD2d 691 (1982) - test for whether a signing bonus is connected with the subsequent performance of a player contract in New York State

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a95_6i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-95 (6) I
Income Tax
August 3, 1995

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I950113A

On January 13, 1995, a Petition for Advisory Opinion was received from
Heath Shuler, P.O. Box 10228, Knoxville, Tennessee 37939.
The issue raised by Petitioner, Heath Shuler, is whether, for purposes of
Article 22 of the Tax Law, he can calculate his 1994 New York source income by
allocating his pre-season and regular season football wages separately, basing
each on the ratio of games played in New York to games played everywhere.
Petitioner is a nonresident of New York State.
He is a resident of
Tennessee. Petitioner is a rookie professional football player and is a member
of the Washington Redskins. The Redskins played four pre-season and 16 regular
season games during the 1994 calendar year. One of the pre-season games was
played in Buffalo, New York. None of the regular season games were played in New
York State.
Petitioner states that he was compensated separately for the pre-season and
the regular season. According to the NFL Collective Bargaining Agreement (Article
XXXVII, Section 3), rookie players are to receive pre-season compensation of $500
per week. Petitioner states that this represents his total compensation for the
pre-season. Petitioner's regular season salary of $950,000 was paid over the
course of the regular season, commencing with the first regular season game.
Petitioner also received a $2,000,000 signing bonus. Petitioner also received
$214.29 for his participation in the Washington Redskins May mini camp.
Pursuant to section 631(c) of the Tax Law, "[i]f a business, trade,
profession or occupation is carried on partly within and partly without this
state, as determined under regulations of the [Commissioner of Taxation and
Finance], the items of income, gain, loss and deduction derived from or connected
with New York sources shall be determined by apportionment and allocation under
such regulations."
Section 132.18(a) of the Personal
("Regulations") provides, in part, that:

Income

Tax

Regulations

[i]f a nonresident employee ... performs services for his employer
both within and without New York State, his income derived from New
York State sources includes that proportion of his total
compensation for services rendered as an employee which the total
number of working days employed within New York State bears to the
total number of working days employed both within and without New
York State.
For the taxable year at issue, section 132.23 of the Regulations
provides, in part, that:
TP-9 (9/88)

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[s]ections 132.15 through 132.22 of this Part are designed to
apportion and allocate to New York State, in a fair and equitable
manner, a nonresident's items of income, gain, loss and deduction
attributable to a business, trade, profession or occupation carried
on partly within and partly without New York State.
Where the
methods provided under those sections do not so allocate and
apportion those items, the [Department] may require a taxpayer to
apportion and allocate those items under such method as it
prescribes, as long as the prescribed method results in a fair and
equitable apportionment and allocation.
The allocation of income pursuant to section 132.18 of the Regulations,
based on days worked within and without New York State during the year, does not
result in a fair and equitable allocation of income earned by a professional
football player for services rendered as such. Nathaniel and Patricia Moore, Adv
Op Comm T & F, February 14, 1989, TSB-A-89(2)I.
In accordance with Nathaniel and Patricia Moore, supra, nonresident
professional athletes are required to allocate their income from the performance
of services on the basis of games played within and without New York State
pursuant to section 131.23 of the Regulations. See, Matter of Roy H. and Linda
White, Dec St Tax Comm, February 14, 1979, TSB-H-80(93)I; Matter of Kareem Abdul
Jabbar, Dec St Tax Comm, April 9, 1982, TSB-H-82(76)I; Matter of Cleon 3ones and
Angela 3ones, Dec St Tax Comm, February 6, 1985, TSB-H-85(33)I. For the taxable
year at issue, the policy enunciated in such Advisory Opinion and New York State
Tax Commission Decisions applies equally to all nonresident professional team
athletes regardless of the sports in which they are engaged and regardless of
whether their teams are based within New York or outside of New York.
Accordingly, for taxable year 1994, Petitioner's income from the
performance of services derived from New York sources is determined on the basis
of games played within and without New York State pursuant to section 631(c) of
the Tax Law and section 131.23 of the Regulations.
Section one of Petitioner's NFL Player Contract provides that the term of
the contract "covers 8 football seasons, and will begin on the date of execution
or March 1, 1994, whichever is later, and end on February 28 or 29, 2001, unless
extended, terminated, or renewed as specified elsewhere in this contract".
Petitioner's NFL Player Contract was executed on August 3, 1994.
Section two of such contract provides that the "[c]lub employs Player as
a skilled football player. Player accepts such employment... Player will report
promptly for and participate fully in Club's official mandatory mini-camp(s),
official preseason training camp, all club meetings and practice sessions, and
all pre-season, regular season, and post-season football games scheduled for or
by Club .... "
Section five of such contract provides that, as compensation "[f]or
performance of Player's services and all other promises of Player, Club will pay
Player a yearly salary as follows: $950,000 for the 1994 season ... In addition,
Club will pay Player ... such additional compensation, benefits, and
reimbursement of expenses as may be called for in any collective bargaining
agreement in existence during the term of this contract."

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Section six of such contract provides that with respect to payment,
"[u]nless this contract or any collective bargaining agreement in existence
during the term of this contract specifically provides otherwise; Player will be
paid 100% of his yearly salary under this contract in equal weekly or bi-weekly
installments over the course of the applicable regular season period, commencing
with the first regular season game played by Club in each season."
Accordingly, pursuant to Petitioner's NFL Player Contract, executed August
3, 1994, Petitioner is compensated on a yearly basis, and, pursuant to sections
two and five of such contract, Petitioner's total compensation for the
performance of services includes his regular season salary and his pre-season
compensation that is determined under Article XXXVII, Section 3 of the NFL
Collective Bargaining Agreement. The fact that, pursuant to section six of such
contract, Petitioner's pre-season compensation is paid during the pre-season
pursuant to Article XXXVII, Section 3 of the NFL Collective Bargaining Agreement
and his regular season compensation is paid during the regular season is
irrelevant.
Therefore, for purposes of section 631(c) of the Tax Law and section 131.23
of the Regulations, the portion of Petitioner's total compensation for the
performance of services that is derived from New York sources is determined on
the basis of the total number of games played within and without New York State
for the taxable year.
With respect to Petitioner's $2,000,000 signing bonus, there are not enough
facts herein to determine whether such signing bonus is includable in his total
compensation for the performance of services allocable as New York source income.
However, if the signing bonus was payable separately from the salary and any
other compensation terms under Petitioner's contract; and if the signing bonus
is nonrefundable; and if the payment of such signing bonus was not conditional
upon Petitioner playing any games for the club or even making the team, such
receipt of the signing bonus would not be connected with the subsequent
performance of Petitioner's contract in New York State and is not considered to
be allocable as New York source income under section 631(c) of the Tax Law. (See,
Matter of Gordon Clark v NYS Tax Comm, 86 AD2d 691 (1982).)
With respect to the $214.29 Petitioner received for his participation in
the Washington Redskins May mini camp, such compensation was not paid pursuant
to his NFL Player Contract executed August 3, 1994 for services rendered under
such contract and is not considered to be compensation allocable as New York
source income under section 631(c) of the Tax Law.
It should be noted that section 132.23 (on and after January 1, 1995,
renumbered as section 132.24) of the Regulations provide, in part, that:
[a] nonresident individual may submit an alternative method of
apportionment and allocation with respect to items of income, gain,
loss and deduction attributable to a business, trade, profession or
occupation carried on partly within and partly without New York
State. The proposed method must be fully explained in the taxpayer's
New York State nonresident personal income tax return. If the method
proposed by the taxpayer is approved by the [Department], it may be
used in lieu of the applicable method under sections 132.15 through
132.22 of Part.
However, the determination of whether an alternative method of
apportionment and allocation of Petitioner's pre-season and regular season

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compensation would be permitted or required is a factual matter that is not
susceptible of determination in an Advisory Opinion. An Advisory Opinion merely
sets forth the applicability of pertinent statutory and regulatory provisions to
"a specific set of facts". §l7l. Twenty-fourth; 20 NYCRR 2376.1(a).
It should also be noted, that for taxable years beginning on or after
January 1, 1995, a new section 132.22 of the Regulations sets forth new
prescribed rules for allocation of compensation received by nonresident
professional athletes.

DATED: August 3, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.