Wednesday, July 2, 2008

Wednesday's Weird Legal Cases - Vol XVII

In honor of yesterday's commencement of the NHL free agency period, tonight's weird (but true) legal case involves an NHL player who challenged a tax levy assessed by New York State.

In Clark v. New York State Tax Commission, 86 A.D.2d 691, 446 N.Y.S.2d 518 (3rd Dept. 1982) the Appellate Division, Third Department examined a matter in which the New York State Commission had demanded that a player who never resided in New York and only played a handful of games for a minor league club in New York pay a percentage of his signing bonus as a tax penalty.

In the factual portion of the decision, Third Department explained that following Gordon Clark's completion of his college hockey career in New Hampshire, he was signed by the Boston Bruins. His contract had three elements: 1) “Addendum A” providing for a $20,000 “signing bonus” upon execution of the contract; 2) “Addendum B” providing for “performance bonuses” and (3) the main body of the document setting forth, among other things, the salary Clark was to receive for each playing season of the contract.

Following his signing of the contract in 1974, Clark went to training camp with the Bruins and then was assigned to the Rochester Americans where he played 31 games. For the tax year 1974, Clark filed a NY State non-resident tax return in which he reported as "New York source income" his salary for the 31 games, but not his signing bonus. The Tax Commission then Clark of a tax deficiency in the amount of $725.40 for 1974 for failure to report the $20,000 “signing bonus” as “New York source income”. After Clark filed a petition for redetermination and had a “small claims” hearing, the Commission held the $20,000 to be “New York source income” and thus taxable under NY Law. The Tax Commission had earlier ruled that petitioner's 1974 salary from the Rochester Americans was properly allocated as “New York source income” on a 22/31 basis since only 22 of the 31 games played were played within NY.

On appeal, the Appellate Division rejected the finding of the Tax Commission, explaining that:

The determination of the Tax Commission finding the $20,000 “signing bonus” to be “derived from New York sources” and “allocable as New York source income” in the same manner as petitioner's salary income is in error and should be annulled. Both petitioner and the Boston Bruins were nonresidents of New York State at the time of execution of the contract and thereafter. The uncontradicted testimony at the hearing revealed that the standard type of “signing bonus” provided in the contract is clearly given in consideration of the athlete giving up his amateur and free agent status and for agreeing to be the exclusive property of the major league club (and/or its minor league affiliates) executing the contract. The said “signing bonus” is payable separately from the salary and any other compensation terms under the contract and is nonrefundable. The payment of the “signing bonus” is not conditional upon the signee playing any games for the club or even making the team. Thus, the receipt of the “signing bonus” of $20,000 on May 16, 1974 was not connected with the subsequent performance of the contract in New York State in the fall of 1974. Therefore, it was improperly ruled to be “New York source income”.
If you want to see the stats for Gordie Clark's illustrious career before he became an assistant coach for the NY Icelanders, click here.

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