It would be silly for Cliff Lee and his team of advisors to not take into consider the tax consequences of signing a long-term contract. Lee is looking to sign a 7-year contract, which will lock him up in a certain locale, where he will play all of his home games and likely be taxed at that state’s rate. Since Texas has no state income tax, a contract offer that looks like it is worth less on paper, may actually equal or be more beneficial than a “higher” offer from a team in another state. New York has a 3.65% city tax plus an 8.97% state income tax. This should be in the back of Lee’s mind as the Yankees continue to sweeten their offer to the very talented starting pitcher.
Ken Bolson of the New York Times does a good job of briefly highlighting the tax implications of Lee’s decision; however, I am a little confused by the very last sentence of his piece, where he writes,
He could also do what a lot of star players do: Ask the Yankees to pay his local taxes.
Interesting, because I have never heard of a professional baseball team agreeing to pay any of its players’ taxes. A few accountants who deal with professional athletes’ taxes tell me that no team will ever pay the local taxes for an athlete. A team may pay a player more money based on an understanding that the player acknowledges the tax consequences of his decision, but that is not a direct payment of taxes. So where does Bolson get this idea from?