Don't Mess With Taxes

Texas baseball fans, or at least those who follow the American League Champion Texas Rangers, are anxiously awaiting the decision by pitcher Cliff Lee as to which team's uniform he'll wear next year.

Lee's timing in 2010 was perfect. His arm helped the Rangers get to the World Series for the first time in the team's history. Then he became a free agent.

Cliff Lee pitching for Texas Rangers, courtesy Texas Mustang/Flickr

Plus, the Rangers new majority owner is a Nolan Ryan, a legendary pitcher who's made it clear that he wants the team to play in -- and win -- the fall classic every year.

So Lee's services definitely are in demand.

Rangers management has made Lee what it considers a very fair offer. Actually, the American League champs have made a variety of offers, giving Lee a buffet from which to choose.

Then there's the New York Yankees.

The evil Major League Baseball empire usually blows every other bidder out of the water by offering players obscene amounts of money. The Yankees have done it again.

Last week, the free-spending MLB powerhouse offered to pay Lee around $140 million for seven years in pinstripes. By the way, thank you Red Sox for forcing the higher bid.

The new Yankees' bid averages out to around $23.3 million a year, less than the average under the six-year deal. But the money would be guaranteed for an extra year. Plus, word is the Yanks might be willing to bump the annual average up to $25 million per year.

So Lee's got some thinking to do. He reportedly will announce his team choice tomorrow.

The tax box score: I'm an Astros fan (yeah, yeah, I know; but the sports heart wants what it wants), so form a baseball standpoint, I don't care what Lee does (unless he suddenly decides he wants to work in Houston).

But I am intrigued with how taxes are probably playing a big part in Lee's decision about his future primary workplace.

Not only is Lee deciding which team best suits his talents, goals and bank account, he's picking a tax rate, too.

If both the Rangers and Yankees offer roughly the same amount of money over a similar contract term, the Lone Star State might have the edge.

MLB players (and other team members who travel with them to games) pay the jock tax.

This is the practice by state and local tax jurisdictions of tax levying their income taxes on traveling professionals, particularly visiting professional athletes.

Jock taxes require that athletes -- or businessmen, musicians and anyone who come to town for work or even those, like telecommuters, who don't -- to pay income taxes in every state where they earn income or have an "economic nexus."

Not only does the athlete or other professional pay a very real fiscal price, they also must deal with the administrative burden of figuring out and filing multiple state and local income tax returns each year.

Texas vs. New York tax battle: By staying in Texas, Lee would play 81 home games in Arlington and three more in Houston during inter-league play against the Astros.

For those 84 games, he wouldn't owe any state taxes since Texas has no state income tax.

Sure, he'd have to hand over some money to other states with income taxes when the Rangers make road trips. But that tax amount would be prorated for the number of days he worked in the state.

But if Lee signed with the Yankees and lived in New York for at least 183 days a year, he would pay a 9 percent state income tax. He'd pay even more in taxes if he lived in the Big Apple.

Or, notes the New York Times, Lee could live outside the Empire State. He would pay the same tax rate if he lived in New Jersey, but slightly less if he and his family settled in neighboring Connecticut with its 6.5 percent income tax rate.

Will the taxes matter to Lee? Sure.

Will they matter enough to influence his team choice? Maybe.

But then again, folks making that kind of cash usually have someone to worry about their finances and taxes and they often figure they have enough to spare for a hungry tax collector or two or more.

And all most athletes really want is to win. That, of course, means even more money from the playoffs and subsequent endorsements.

So Rangers, Yankees, other MLB fans concerned about salary escalation and state and local tax departments must wait to see where Lee and his big chunk of taxable income will go.

Related posts:

• Did taxes affect LeBron's decision?
• The shared tax troubles of rich athletes and telecommuters
• Bronx Bomber in tax dispute with NY
• British taxes drive off sports stars

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