So when we all look at contract offers we don't really ever look at them as accountants. But an offer in Texas is not the same as an offer in Ohio is not the same as an offer in New York. Cursory readings of tax rates shows the following (and I am no CPA, and may have botched this reading, but whatever, it's kind of fun).
Federal Tax Rate on income over $373,615: 35%
New York State Taxes on income over $500,000: 8.97%
New York City Personal Income Taxes, married filing jointly: $3,071 plus 3.648% of income over $90,000
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Texas State Taxes on income: None
Crudely, the Yankees have to do a lot better than the Rangers with the base dollars or salary structure (Lee will play half his games in NYC and therefore be taxed accordingly, along with games in other cities that would be taxed per their local rates) just to have an equivalent offer, it seems. Here's hoping Lee has a tax accountant on staff.
12 replies on “How Equal?”
(Lee will play half his games in NYC and therefore be taxed accordingly, along with games in other cities that would be taxed per their local rates)
Wait, is this really how it works? So if Ortiz plays 81 games in Boston, and 18 games in New York/Tampa/Toronto/Baltimore, 11% of his income is taxed for New York, 11% for Florida, 11% in Maryland, and 11% subject to Canadian tax? Not to mention the breakdown for every other city they play in?
That seems somewhat absurd.
I am pretty sure if he earns income in another state he pays them taxes. Like I said, I am not sure, but have read of this. He gains a great deal in any case by being a Texas resident and not playing games in NYC and working for the Yankees, at least financially.
Jeter had some issues related to home-state address, and this article addresses the issue in brief.
http://www.nytimes.com/2008/02/10/business/yourtaxes/10base.html
Jeter’s issue was regarding state residence though. He owned property and lived in Manhattan the majority of the year, yet was trying to claim permanent residency in Florida since there’s no income tax there.
It still doesn’t make sense to me that they would have to pay taxes to each state they play in. I went on a business trip to Boston last year for 2 weeks… does that mean I owe 1/26 of my yearly salary to the state of MASS? I’m legitimately curious now.
so what you’re saying is that the yankees [and teams like them tax-wise] have to overbid by a certain percentage just to level the playing field with the other teams…baseball should close this loophole immediately…it’s grossly unfair… ;)
seriously though, i’m not sure it works that way sf, but i am sure the good agents are all over it…it would be interesting to hear from someone who does understand tax codes of the various jurisdictions represented by a mlb team…
Complicating the task of figuring all this out is the concept of state tax credits. If a player’s home state has an income tax, it will allow him to deduct roughly what he has paid to other states from the amount owed the home state.
For example, Laurence I. Foster, a certified public accountant who is a consultant at Eisner L.L.P., said that “when the Yankees are playing in Cleveland, Cleveland taxes would apply.” They are deducted from New York taxes due on that income.
No double taxation. But he does have to deal with NY taxes if he plays for the Yankees, they are burdensome relative to other places.
Ahhh, thanks for finding that SF. I’m baffled that it works that way though. I’d hate to be the tax guy who has to figure all of that out.
yes, and while i was kidding, it does shed a little more light on the whole yankees overpaying whine…they may still be, but not by as much perhaps…
attackgerbil is not a tax accountant. But he knows one, and her advice to attackgerbil is that he should start earning a living rather than doling snarky comments and (probably wrong) tax information.
From what I have been told, persons (not just athletes) are subject to state/county/municipal taxes, depending on the tax codes of each locality wherein the income is derived in addition to the obligations described by the codes of the locale of primary residence. Therefore, the answer is: consult your tax accountant.
Yeah, a $150m offer means almost $20m in extra taxes for Lee just for going to New York. That’s quite a handicap they’re playing with.
A quick back of the envelope (or, back of the spreadsheet) calculation.. Assuming the Rangers play in NY City 6 times a year, here is what Lee might owe in yearly NY related taxes, based on a hypothetical $22M salary
W/Rangers(6) $71,428(state) $29,725(city)
W/Yankees(81) $964,275(state) $401,280)(city)
Difference of about $1.2M or so.
While Lee might lose some in state and local taxes, wouldn’t have better opportunities to get more endorsement deals playing in NYY instead of Texas and therefore be able to increase his earnings to make up the losses in NYY salary due to taxes? That was one of the arguments for Lebron to play for the Knicks, he’d have more endorsements than he would playing in Miami.
A brief summary in the WSJ about this issue:
http://online.wsj.com/article/SB10001424052748704457604576011962026969624.html?
One good point is the added potential for endorsements if Lee were to sign in NY…