Attached for public and practitioner comment are amendments to Regulation, 830 CMR 62.5A.2, Compensation Received by Non-Resident Professional Team Athletes. The Regulation has been amended to include a new section 3, Contract Buy-Out and Similar Payments. This amendment has been undertaken to make the regulation consistent with regulation 830 CMR 62C.5A.1, Non-Resident Income Tax.

Additional amendments include a new Example 7 which outlines the treatment of such contract or option year buy-out payments. In addition, the definition of "duty days" has been revised so that days spent traveling to or from Massachusetts for members of Massachusetts based teams will now be considered Massachusetts "duty days" regardless or whether such travel day includes a game, practice, etc. Finally, the provision pertaining to No tax Status has been revised for clarity and a new Example 8 added.

Please email any comments to rulesandregs@dor.state.ma.us by February 26, 2010.

WORKING DRAFT FOR PRACTITIONER AND PUBLIC COMMENT 2/9/10

830 CMR: DEPARTMENT OF REVENUE

830 CMR 62.00: INCOME TAX

830 CMR 62.5A.2: Compensation Received by Non-Resident Professional Team Athletes

830 CMR 62.5A.2 is hereby amended as follows:

830 CMR 62.5A.2(1)(b) is hereby repealed and replaced with the following new subsection:

(1) Statement of Purpose, Outline of Topics; Effective Date

(b) Outline of Topics. 830 CMR 62.5A.2 is organized as follows:

(1) Statement of Purpose; Outline of Topics; Effective Date
(2) General Rule
(3) Contract Buy-Out and Similar Payments
(4) Definitions
(5) Examples
(6) Alternative Apportionment Method
(7) Composite Returns
(8) No Tax Status

830 CMR 62.5A.2 is amended by adding new section (3) as follows:

(3) Contract Buy-Out and Similar Payments, In the case of a severance payment, contract or option year buy-out or similar payment, the portion of such payment subject to Massachusetts taxation shall be calculated as a fraction, the numerator of which is the number of duty days spent in Massachusetts during the term of the contract and the denominator of which is the total number of duty days during the term of the contract.

830 CMR 62.5A.2(3) is hereby renumbered to 830 CMR 62.5A.2(4) and further amended by adding new subsection (e) to the definition of " Duty Days.

(4) Definitions.

Duty Days.

(e) Travel days during the season during which a game, practice, team meeting, promotional "caravan," or other similar team event is not held shall be considered in the total duty days spent within and without Massachusetts. Such travel days are not considered part of the duty days spent in Massachusetts, provided however that with respect to a Massachusetts-based professional athletic team, days actually spent traveling to and from Massachusetts are considered duty days spent in Massachusetts regardless of whether a game, practice, team meeting, promotional "caravan," or other similar team event is held on the same day.

830 CMR 62.5A.2(4) is amended by repealing and replacing the definition of Qualified Electing Non-Resident Team Member with the following new definition:

Qualified Electing Non-Resident Team Member, a non-resident team member of a professional athletic team seeking to file a composite return with other team members who meets all of the following criteria: (a) is a non-resident for the entire taxable year; (b) has no other Massachusetts source income, and if married and filing jointly with his or her spouse, whose spouse has no Massachusetts source income; (c) elects to be included in the composite return by signing the statement required under 830 CMR 62.5A.2(7)(a); (d) has not filed a separate return in Massachusetts for the tax year in question; and (e) waives the right to claim deductions, exemptions, and credits allowable under M.G.L. c. 62, §§ 3, 5, and 6.

830 CMR 62.5A.2(4) is amended by repealing and replacing the definition of Total Compensation for Services with the following new definition:

Total Compensation for Services, the total compensation received by a non-resident team member during the taxable year for services rendered: (a) from the beginning of the official pre-season training period through the last game, including play-off games, in which the team competes or is scheduled to compete during that taxable year; and (b) during the taxable year on a date which does not fall within the aforementioned period (e.g., participation in instructional leagues, the "Pro Bowl," promotional "caravans," or representing the team at an all-star game ). Such compensation shall include, but is not limited to, salaries, wages, bonuses, and any other type of compensation paid during the taxable year to a member of a professional athletic team for services performed in that year. Effective for tax years beginning on or after January 1, 2003, such compensation shall also include, without limitation, separation, sick or vacation pay, contract or option year buy-out payments, deferred compensation and nonqualified pension income not prevented from state taxation by the laws of the United States, and income from a covenant not to compete.

830 CMR 62.5A.2(4) is hereby renumbered to 830 CMR 62.5A.2(5) and is further amended by adding the following new example:

(5) Examples.

Example 7: Player E, a member of a professional athletic team, is a non-resident of Massachusetts. E spends duty days in Massachusetts during several seasons over the term of the contract. At the end of the most recent season, E receives a contract buy-out payment from his team. The contract buy-out payment will be apportioned to Massachusetts based upon the number of duty days E spent within Massachusetts rendering services for the team during the term of the contract, vis a vis the total number of duty days spent both within and without Massachusetts during the term of the contract.

830 CMR 62.5A.2(5) is hereby renumbered to 830 CMR 62.5A.2(6).

830 CMR 62.5A.2(6) is hereby renumbered to 830 CMR 62.5A.2(7).

830 CMR 62.5A.2(7) is hereby renumbered to 830 CMR 62.5A.2(8) and is further repealed and replaced with the following:

(8) No Tax Status. Massachusetts law provides that every non-resident, whose Massachusetts gross income (calculated generally as if he or she were a resident) exceeds $8,000 or the personal exemption to which he or she may be entitled, whichever is less, must file a personal income tax return. M.G.L. c. 62C, § 6. If a non-resident team member's income does not exceed the filing threshold, he or she does not owe Massachusetts tax. A non-resident team member will not be accorded no tax status if he or she elects to be included in a composite return.

Example 8: Player X earns $200,000 in income but only 3% of X's duty days were spent within Massachusetts. Thus, Player X has $6,000 in income apportionable to Massachusetts. However, because Player X's Massachusetts gross income (premised on the full amount of his earnings as if X were a Massachusetts resident) exceeds $8,000, X has a Massachusetts filing obligation and must be included in a composite return filed by X's professional athletic team.

WORKING DRAFT FOR PRACTITIONER AND PUBLIC COMMENT 2/9/10