Establishing Residency for Professional Athletes — What You Need to Know

Professional athlete residency is one of the most misunderstood and highly scrutinized areas of tax planning. Done correctly, a change in residency can produce significant tax savings; done incorrectly, it can result in audits, penalties, interest, and unintended tax liabilities. Residency planning must be thoughtful, thorough, and documented. States are no longer persuaded by simply obtaining a driver’s license or using a new mailing address.

Why Residency Matters

State residency determines where you owe state income tax on your entire income (including team salary, bonuses, endorsements, appearances, and investment income). States also tax non-residents on income earned within their borders (e.g., games and team duties). This multi-state tax exposure is often referred to as the “jock tax,” where each state with an income tax can impose tax on your earnings sourced to that state.

For example, if you remain a resident of a state with a high income tax rate (e.g., California) but sign with a team in a state without income tax (e.g., Texas), your resident state can still tax your worldwide income.

What Determines State Residency

Establishing residency is based on facts and circumstances and not merely where you spend the most time. Generally, a state will consider you a resident if:

1. You have domicile in the state (your permanent home), or
2. You meet a statutory residency test (often ~183 days and a permanent place of abode), even if another state is your claimed domicile.

States look at the total picture — your actions, connections, and patterns— to determine where your true, permanent home is. Changing residency requires affirmative steps and consistent behavior to sever ties with the former state and establish ties in the new one.

Core Residency Concepts

Domicile — Your Permanent Home

Domicile is the state you intend to return to and remain in when not traveling. You can only have one domicile at a time. States evaluate domicile based on:

• Where you return after the season
• Family location
• Where your personal belongings are kept
• Location of primary advisors, doctors, trainers, social ties
• Community involvement

Receiving a new driver’s license or registering to vote are supportive evidence, but alone are not sufficient to establish domicile.

Physical Presence — The Days Test

Many states apply a statutory residency test using a day count, typically 183days in the state plus a permanent place of abode. If both conditions aremet, you may be treated as a resident even if your domicile is claimed elsewhere.

Important for athletes:

• Days in the state with your team count toward this test. Team travel, practices, games, and team obligations are days physically present in that state.
• Duty-days — including practice, meetings, and travel — often count for tax allocation and residency purposes, depending on the state.
• States may use team schedules and travel data in audits to verify your day count.

Team Travel, Off-Season Time & Physical Presence

During the Season

Time spent in a state due to team obligations — games, practices, team travel — generally counts as physical presence. There are no special exemptions foremployer-mandated travel. Even travel days can count depending on arrival and departure times and applicable rules.

Off-Season Time

How and where you spend off-season time is often the most critical factor in residency disputes:

• Where do you live and train after the season?
• Where do you spend holidays and extended breaks?
• Where is your family based year-round?

States view off-season conduct as personal choice — and therefore highly indicative of true intent and domicile.

Example Scenarios

Example 1 — Successfully Establishing a New Residency

An athlete:

• Sells or rents out the prior home in a high-tax state
• Establishes and occupies a residence in a low/no-tax state
• Relocates his family full-time
• Registers to vote and obtains a driver’s license in the new state
• Limits days in the former state and documents travel
• Spends off-season at the new residence

Outcome: The state recognizes the new state as your domicile. Your resident state taxes only in-state income; other states tax only income sourced to them.

Example 2 — Believes He Moved, But Didn’t

An athlete:

• Changes driver’s license to a low-tax state
• Retains a luxury home in the former high-tax state
• Spends most off-season time in the former state
• Family remains in the former state
• Minimal ties established in the new state

Audit Result: The former high-tax state considers the player’s domicile unchanged(center of life remains). Taxing authority can tax worldwide income, plus penalties and interest.

How the Top 5 Highest Income Tax States View Domicile

Certain high-tax states are particularly aggressive in residency audits and emphasize domicile over superficial ties:

1. California
   • Very strict criteria on domicile.
   • Focuses on where you come home between travel.
   • Family location and habitual return patterns carry heavy weight.
2. New York
   • Applies both statutory residency and domicile principles.
   • Strong focus on day count and maintenance of permanent places.
3. New Jersey
   • Similar to New York with high audit intensity.
   • Residency triggers often tied to day thresholds and lifestyle evidence.
4. Oregon
   • Examines intent and permanence.
   • Close attention to off-season activity and personal networks.
5. Minnesota
   • Uses a multi-factor test with ties to family and community.
   • Social and economic relationships factored into domicile.

Across these states, merely obtaining paperwork (license, voter registration) without behavior consistent with domicile is insufficient.

State Residency Audits — What to Expect

States scrutinize residency claims, especially for high-income taxpayers like professional athletes. An audit may request:

• Detailed day-by-day travel logs
• Flight records and itinerary details
• Hotel and lodging receipts
• Credit card and bank statements
• Cell-phone location data
• Family scheduling records
• Social media and public posts

States have access to publicly available team schedules and travel, which they use to cross-check claimed residency status during audit reviews.

Common Residency Planning Mistakes

• Assuming team travel days are irrelevant
• Failing to relocate family or personal effects
• Holding property in former state without economic justification
• Inconsistent documentation of off-season behavior
• Treating residency as a one-time act instead of ongoing practice

Key Takeaways

• Residency is determined by actions, not intentions alone.
• Physical presence with the team counts toward domicile and day tests.
• Off-season behavior and family patterns are highly influential in domicile determination.
• High-tax states aggressively audit athletes and apply detailed factual analysis.
• Proper documentation and advanced planning are essential.

Next Steps

Residency planning should be integrated with

• Contract timing and bonus structure
• Off-season location decisions
• Family logistics
• Long-term planning (estate, retirement, investment)

Working with experienced tax and financial advisors before relocating will help align your residency with your overall tax strategy and reduce audit risk.

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