Interdepartment

rrespondence Sheet

City of Cincinnati
December 2,2002

To: Finance Committee

From: Valerie A. Lemmie, City Manager

Subject: Taxation of Visiting Athletes and Entertainers

Reference Doc. # 2 0 0 2 0 5 9 3 7
The Finance Committee at its session on November 12,2002 requested further information with regard
to the taxation of visiting athletes and entertainers.

In response to this request, the answers to the Committee’s questions are as follows:

1. What methodology and calculations were used to determine the estimated revenues from
modifying the Municipal Code to permit the taxation of visiting athletes and entertainers
who are currently exempt from tax based on the 12-day rule?

Methodolow for VisitinP Athletes

We used the methodology for income allocation recommended by the National Federation of Tax
Administrators in May of 1994. This methodology defines duty days as all days from the date an
employee is required to report to preseason to the final game of the season. The report outlining this
methodology is attached.

Calculations - Football
Salaries were estimated based on data retrieved from the Internet. The average visiting professional
football team salary for 1999-2000 was $54,868,040. We calculated 174 duty days from the date
they reported to camp to the final game plus mini camp and/or endorsements. The visiting teams
were scheduled for 2 preseason games and 8 regular season games. For each game day, we assumed
that the players would be required to be in the visiting city a day before the game for a practice or
meeting. The number of duty days in Cincinnati for each visiting team (2) divided by the number of
total duty days (174) was the percentage (1.15%) that we applied to the visiting team salary to
determine taxable income for each game. The taxable income for each game was multiplied by 10
because 10 games were played in Cincinnati. The total taxable income for all games played was
multiplied by our 2.1% tax rate to generate the estimated revenue collected from this source. This
amount was $132,506.

In November of 2002 we recalculated this estimate based on 2002 information. Our revised estimate
is $150,544.

Calculations - Baseball
Salaries were estimated based on data retrieved from the Internet. The average visiting professional
baseball team salary for 1999-2000 was $55,968,328. We calculated 223 duty days from the date
they reported to camp to the final game. Each day a game was played in Cincinnati was considered a
duty day for the visiting team. Each time a visiting team played in Cincinnati, the duty day was equal
 to one (1) divided by the number of total duty days (223) or (.4484%) that we applied to the visiting
team salary to determine taxable income for that game. The visiting teams were scheduled for 8 1
regular season games. Therefore the total percentage of taxable income for all of the games was
.4484% times 8 1 or 36.32%. We determined total taxable income by multiplying 36.32% by the
average baseball team salary. This taxable income amount was multiplied by our 2.1% tax rate to
generate the estimated revenue collected from this source. This amount was $426,882.

This week, we recalculated this estimate based on 2002 information. Our revised estimate is
$588,866.

Methodolorn for Visiting Entertainers

Salary information was not available on the Internet. The City of Cleveland was the only comparable
city in Ohio that had revenue data for the amounts collected from entertainers. Cleveland estimated
during 2001 that the revenues generated from this source were between $400,000 and $600,000 per
year. We estimated that we would generate $200,000 from this source.

Cleveland collected $600,000 from this revenue source in 2001

I

2. Survey of Ohio and similar cities.

Many cities similar to ours charge some form of an earnings tax on either visiting athletes or
entertainers or both. Cities typically pursue the tax when there is an opportunity to collect significant
revenues from the source.

Citv Name Who is subject to the tax?

Cleveland, Ohio Both visiting athletes and entertainers

Columbus, Ohio Both visiting athletes and entertainers
Dayton, Ohio Both visiting athletes and entertainers
Detroit, Mi. Both visiting athletes and entertainers
Lexington, Ky. Neither visiting athletes nor entertainers
Louisville, Ky. Neither visiting athletes nor entertainers
Pittsburgh, Pa. Only visiting athletes
Toledo, Ohio Visiting athletes and entertainers
St. Louis Visiting athletes and entertainers

Officials in Cleveland, Columbus, Dayton, Toledo and St. Louis were not aware of any entertainers
or events that bypassed their cities because this tax was imposed.

3. Find out if the following cities have the tax: Dayton, Blue Ash, Covington, and Newport.

Dayton taxes visiting athletes and entertainers. Employers are required to withhold the tax. This tax
has been collected for over 30 years from entertainers. Superintendent Mike Voekl of Dayton’s tax
department indicated that he is not aware of any athletic team or entertainment act that bypassed their
city because this tax was assessed.

Fairborn also taxes visiting athletes and entertainers. The Nutter Center and the Dayton Bombers are
located in Fairborn.

Blue Ash has the provisions for this tax in their ordinance. Shany Long, Tax Commissioner for Blue
Ash indicated that the tax is not aggressively pursued because they have no major sports or
entertainment businesses in the area.
The City of Covington does not tax athletes and entertainers specifically, but anyone working in
Covington for more than three days or making more than $3,000 is subject to their occupational
license tax (applied similarly to our income tax at 2.5%). Darryl Strong from the City of Covington
indicated that although he has had complaints about this tax over the years, he is not aware of any
sports or entertainment event that was moved in response to the tax.

The City of Newport taxes athletes and entertainers. The City has more entertainers than athletes
that are subject to the tax. Mr. Mike Whitehead with the City of Newport stated that currently, any
business that offers live entertainment has two options. They sign a written statement that they will
either:

1. Withhold the 2.5% (the regular withholding rate on employee wages) of the amount that
they pay to the entertainers and forward that amount to the city with their regular quarterly
payment.
2, Require each entertainer to have their own occupational license in which case they have to
furnish the city with the entertainer’s name and mailing address. This then is enforced by
the City’s police department.

5. Will athletes and entertainers with a small amount o f earnings be required to pay this tax?

The Cincinnati Municipal Code requires the tax commissioner to enforce payment of “all income
taxes owing the City of Cincinnati.” A board of income tax review was established by the City to
hear disputed tax cases and guide City tax policy. The board of review is authorized by the City
Municipal Code to approve a reduction in the tax, interest or penalties imposed in the tax ordinance.
The board granted the tax commissioner power to set a minimum assessment amount for collection
below which it is not cost effective to pursue the tax. This would apply to those subject to the
implementation of this tax.

If you have additional questions, staff will be available at the public hearing to answer them.

Cc: William E. Moller, Finance Director

Teresa Richter, Income Tax Commissioner