Supreme Court Ruled Indians Must Pay Taxes in Payout Year

High Court Rules Cleveland Indians Must Pay Wages Taxes in Payout Year

Reversal of lower court stems from Collusion Cases of the 1980s

Washington, April 18, 2001 -- The U.S. Supreme Court has overturned a lower court ruling, mandating that back wages paid by the Cleveland Indians in 1994 to eight major league baseball players, are susceptible to federal taxes the year the money was paid out. There was a question as to whether the money should have been taxed the year it was actually paid out, or the year in which it should have been paid.

This ruling comes as a result of the collusion claims in the 1980s, in which the players claimed that the owners were agreeing not to sign free agents in order to keep salaries low. The owners lost this case, and were forced to pay back wages to players in compensation for money they might have earned on the free market, had it been truly "free."

The ruling was a reversal of the U.S. Court of Appeals for the Sixth Circuit in Cincinnati, as reported by sportsbusinessnews.com. The case originated from the Major League Baseball Players Association's victory over league owners in 1994, charging them with collusion in an unsuccessful attempt to stifle free agent player salaries. As reported similarly by the Associated Press, the Cleveland Indians Baseball Co., in 1994 paid out more than $2.5 million to 22 players from the 1986 and 1987 seasons.

Justice Ruth Bader Ginsburg, wrote the opinion for the court in U.S. v. Cleveland Indians, 00-203. She stated that the Internal Revenue Service has consistently interpreted the rules "to require taxation of back wages according to the year the wages are actually paid, regardless of when those wages were earned or should have been paid.". The ruling potentially has a wide-ranging effect on lump-sum labor cases.

Sources:

The Wall Street Journal, Associated Press, sportsbusinessnews.com

David Burkey and Matthew Roberts