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The Journal Gazette

  • Associated Press The Seattle Mariners, playing in a state without an income tax could be more attractive to free agents under the new federal tax law.

Saturday, December 23, 2017 1:00 am

High-paid players win, lose in tax law

Deduction caps less of issue in Texas, Florida

RONALD BLUM | Associated Press

NEW YORK – Teams in Texas, Florida, Nevada and Washington state may have become more attractive destinations for free agents following the enactment of tax law changes.

Deductions for state and local taxes are capped at $10,000 in the year starting Jan. 1 for married couples filing jointly. That has a huge impact for athletes with seven- and eight-figure salaries.

“Obviously, the zero income-tax states have now more of an advantage than before,” said baseball agent Scott Boras, who is negotiating big-money deals this offseason for free agents J.D. Martinez, Eric Hosmer, Mike Moustakas, Jake Arrieta and Greg Holland.

Geography, family comforts, playing time and winning remain the most important factors for many.

“I understand the tax differential issue but have rarely thought it was outcome determinative in where a player signs,” baseball Commissioner Rob Manfred said.

But the teams in states with a higher percentage of take-home pay make their advantage known.

The $10,000 limit also includes deductions for property and sales taxes – large numbers for the most prominent athletes.

At the same time, the top tax rate has been lowered to 37 percent for single filers earning more than $500,000 and married couples filing jointly earning more than $600,000. That is down from 39.6 percent for single filers earning more than $418,400 and married couples filing jointly earning more than $470,700.

For baseball, the AL West becomes the most attractive for tax status. The World Series champion Houston Astros, along with the Texas Rangers and Seattle Mariners, all have no state income tax. That means a player on one of those teams would play 99 or 100 of 162 games in states with no tax.

Rangers President of Baseball Operations Jon Daniels calls the tax advantage “more of kind of a side benefit than a feature.”

“Some players and some agents care more than others. Some have been more focused on the sticker prices, especially agents that are paid on the gross,” he said. “We try not to make it too much of a focal point of our recruiting efforts. I think when it's pushed too heavily it can be a turnoff.” 

Already complex, negotiations could become even more nuanced.

“Teams based in Florida, Washington and Texas will clearly have an additional advantage over other clubs in contract negotiations with free agent players given the new tax code,” baseball agent Jay Reisinger said. “They already had an advantage by virtue of no state income tax, but this will be magnified under the new tax code. Agents will also seek tax-equalization language in the event of a trade.”

Knowing the Marlins have frequently sold off stars, Dee Gordon, Wei-Yin Chen and Christian Yelich had tax equalization provisions as part of their multiyear contracts with Miami.

California has the highest state tax in 2017, a 13.3 percent rate that includes a 1 percent mental health services tax for income over $1 million.

New York has a top tax rate of 8.82 percent, and New York City has a maximum rate of 3.876 percent for a 12.696 percent total.