State and city taxes play a major role in where a free agent wants to play. How will high New York City taxes affect the New York Mets?
April is the month that many of us every day, hard-working Americans dread when it comes to filing our taxes. Oftentimes we are left scrambling around till the last second in an effort to look for those extra receipts we could claim as deductions or are going over the final figures with our accountants in an effort to make sure that we don’t incur any late penalties from Uncle Sam. Though far different, taxes affect the New York Mets in their free agency hunt.
But what about elite athletes in professional sports? Are the high state and city income taxes something that acts as a deterrent for Major League Baseball players from signing here in New York city with the Mets? Do players go out of their way to join the teams in states where the income tax is non-existent, even if the teams in those cities don’t have competitive ball clubs?
I believe the short answer to this is no.
If a player’s tax rate was ever a major factor in how they decide where they want to play professional baseball, then teams like the Mariners, Rangers, Marlins and the Rays would all have the best free agents wanting to play for their clubs every year. This is because states like Florida, Washington, and Texas lack a state income tax. If a player was going to go out of their way to save an extra dollar or two on their yearly salaries, these would be the states that the majority of MLB stars would be aiming towards playing in.
But with very few exceptions (Alex Rodriguez signing with the Texas Rangers in 2001, Chan Ho Park signing with the Rangers in 2003 or possibly Bryce Harper choosing the Phillies over the Giants and Dodgers in 2019 being some of those exceptions), taxes really don’t seem to rank as high priority for players when choosing which teams they want to sign with as free agents.
What star ballplayers actually look for when considering which teams they want to sign with are things like the quality of the teams they are going to (ie -is that team a postseason contender or not), if the management is willing to go the extra mile to make the team competitive by acquiring other talent and if the city they are planning to sign with is one that personally suits their lifestyles and habits.
Only after all these factors have been carefully weighed does the issue of taxes then come into focus.
Both New York and California have some of the highest state income tax rates in the U.S. at 8.83% and 12.3% respectively. Playing for a team like the Mets or the Yankees would also cost a baseball player another 3.78% in city tax from New York City on top of that. Playing for a team like Los Angeles or San Francisco would add another 8% in city taxes on top of the 12.3% that a player would be taxed at the state level in California.
Many people feel this is why Bryce Harper decided to sign with the Philadelphia Phillies over the Giants or the Los Angeles Dodgers at the end of the day. Pennsylvania has a low state tax rate of only 3.07% for all income levels. As a result, Harper saves about $30 million on taxes off his salary by choosing to play for a Pennsylvania based baseball team instead of playing for a team situated in California.
But in both Alex Rodriguez and in Bryce Harper’s cases, they would have preferred to have signed with the Mets or the Yankees had either club made them somewhat decent offers during their free agent seasons despite the high tax rates in New York. Again, this is because of the prestige and opportunity one receives playing in a big and competitive baseball market like the Big Apple.
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In my opinion, I believe most baseball players would encounter other opportunities and means to generate revenue in New York City, such as endorsements and ad revenue from commercials. This would offset the money they lose due to being in a high tax bracket. I think these opportunities would be sufficient enough to entice them to want to play for a team like the Mets.
What is also interesting is that the high tax rates from playing in a large state like New York or California don’t apply to 100% of a ball player’s salary if they choose to be a Met, Yankee or a Dodger. This is because the IRS tax code has a rule in it known as the “jock tax”.
The “jock tax” basically states that a professional player has to be taxed at a proper tax rate based on where they play their games. Since every team plays 81 of their 162 games at home, only half of a player’s salary will be taxed at the state and city rates of the team they play for (which in this case would be New York if the player signed with the Mets). A percentage of the remaining salary would then be prorated and taxed according to the other cities and states the New York player played in during the regular season.
For example: A player on the NY Mets making $20 million a year would have half of his salary taxed at the New York State and city level because he played 81 games a year (out of 162) at home. If he played 8 games on the road or roughly 5% of his total schedule (8/162) in 2019 at say Atlanta, then 5% of his salary would get taxed at the Georgia state and city level tax rate. The same would apply for the number of games played in Philadelphia, Chicago, Colorado, Arizona….etc.
Aside from being a total pain for the accountants of Major League ballplayers to have to calculate every year, this “jock tax” does serve the purpose of allowing baseball players playing in high taxation states like New York, the ability to save a few hundred thousand to millions of dollars in salary money by having half of their paycheck taxed at lower rates depending on which cities they play their road games in during the regular season.
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I do believe however, that as salaries tend to get larger and larger and the gap between the amount of salary saved as compared with the amount of salary taxed begins to widen, that mid-level star players who do not get as much opportunity to generate income from alternate means of work such as advertising, will indeed make state income tax levels more of a factor in deciding where they want to play. This is where I think Brodie Van Wagenen and the Mets management will have their work cut out for them in trying to fill out their roster positions with high quality, mid-tier talent.