State Taxes Where They Play. And Canada

[Arroyoyo]

When you see mega-deals signed in California, it’s always fun to consider how the real value to the player would differ if they had signed in other states.

He’ll pay ~$3,282,500 annually in California state taxes. Nearly $40 million over the course of the contract.

He would have paid $1,354,100 annually, and $16,250,000 over the course of the contract, if he signed the same contract with the Red Sox.

In other words, adjusting for location (and disregarding federal income taxes), his contract is worth $285,000,000 in California and it would have been worth $308,750,000 in Massachusetts.

Even if the Red Sox max offer was $300,000,000, after adjusting for state taxes (and once again disregarding federal as that’s the same no matter where you live) his “net” would have equaled that of signing for a team in California ($285,000,000).

If the Sox matched that $325m, he left $23,750,000 on the table to live in Ohtani’s shadow.

 

[bluefenderstrat]

When you see mega-deals signed in California, it’s always fun to consider how the real value to the player would differ if they had signed in other states.

He’ll pay ~$3,282,500 annually in California state taxes. Nearly $40 million over the course of the contract.

He would have paid $1,354,100 annually, and $16,250,000 over the course of the contract, if he signed the same contract with the Red Sox.

In other words, adjusting for location (and disregarding federal income taxes), his contract is worth $285,000,000 in California and it would have been worth $308,750,000 in Massachusetts.

Even if the Red Sox max offer was $300,000,000, after adjusting for state taxes (and once again disregarding federal as that’s the same no matter where you live) his “net” would have equaled that of signing for a team in California ($285,000,000).

If the Sox matched that $325m, he left $23,750,000 on the table to live in Ohtani’s shadow.

Meaningless. Edit: I didn't mean to belittle your post, it is a nice exercise, but there's just no functional difference between $150 million or $175 million net worth...unless maybe you're Antoine Walker or something. Maybe at a certain level you can own a private jet vs. using NetJets.

 

[Arroyoyo]

Meaningless. Edit: I didn't mean to belittle your post, it is a nice exercise, but there's just no functional difference between $150 million or $175 million net worth...unless maybe you're Antoine Walker or something. Maybe at a certain level you can own a private jet vs. using NetJets or whatever.

If you don’t think players think long and hard about state income taxes, you’re very mistaken. Not only has this been well documented by agents and players themselves, we have a recent example of a player (Ohtani) structuring their contract perhaps in part to avoid paying state taxes:

https://www.sandiegouniontribune.com/business/nation/story/2023-12-15/shohei-ohtanis-contract-with-the-dodgers-could-come-with-bonus-of-mostly-avoiding-california-taxes

He’s almost certainly going to bolt CA at the end of the deal, when the real paydays begin. And based on how state tax codes are structured, California will be none the richer because of it.

I’m curious if we start seeing more of this when it comes to mega-deals handed out to international players.

 

[sodenj5]

If you don’t think players think long and hard about state income taxes, you’re very mistaken. Not only has this been well documented by agents and players themselves, we have a recent example of a player (Ohtani) structuring their contract perhaps in part to avoid paying state taxes:

https://www.sandiegouniontribune.com/business/nation/story/2023-12-15/shohei-ohtanis-contract-with-the-dodgers-could-come-with-bonus-of-mostly-avoiding-california-taxes

He’s almost certainly going to bolt CA at the end of the deal, when the real paydays begin. And based on how state tax codes are structured, California will be none the richer because of it.

I’m curious if we start seeing more of this when it comes to mega-deals handed out to international players.

That’s…not how taxes work. Ohtani is still going to pay CA taxes and receive an offset in whatever state he resides in when he retires. Otherwise it would be blatant tax evasion.

Just like people that live in CT and work in NY or vice versa. You file two returns. His income is still going to be considered earned in CA because that’s where the Angels operate from.

 

[Arroyoyo]

That’s…not how taxes work. Ohtani is still going to pay CA taxes and receive an offset in whatever state he resides in when he retires. Otherwise it would be blatant tax evasion.

Just like people that live in CT and work in NY or vice versa. You file two returns. His income is still going to be considered earned in CA because that’s where the Angels operate from.

You may want to rethink this.

I work for a company located in Silicon Valley.

I live (and work from) a tax free state.

I pay zero state income taxes.

Ohtani’s post-playing career paychecks aren’t going to be paid for services rendered in California. He’s receiving a modest annual salary the next decade for those services.

He’s exploiting a tax loophole.

And last I checked, Japan is not one of the 50 US states. Do you think Ohtani is going to retire to New York City or something?

 

[sezwho]

That’s…not how taxes work. Ohtani is still going to pay CA taxes and receive an offset in whatever state he resides in when he retires. Otherwise it would be blatant tax evasion.

Just like people that live in CT and work in NY or vice versa. You file two returns. His income is still going to be considered earned in CA because that’s where the Angels operate from.

It’s suspect it’s even more complex than that for a foreign national. I’m not sure it’s clear where he ‘lives’ or how deferred income will be potentially recognized by Japan, especially after his playing career should he return to residency.

 

[Bread of Yaz]

That’s…not how taxes work. Ohtani is still going to pay CA taxes and receive an offset in whatever state he resides in when he retires. Otherwise it would be blatant tax evasion.

Just like people that live in CT and work in NY or vice versa. You file two returns. His income is still going to be considered earned in CA because that’s where the Angels operate from.

I believe his benefit is because he deferred receiving salary for 10 years. Tax code apparently provides that if you do this, you are taxed on the income where you reside when you receive it, not where you earned it. So if he retires after year 10 and moves to FL, for example, he avoids CA taxes.

 

[Arroyoyo]

I believe his benefit is because he deferred receiving salary for 10 years. Tax code apparently provides that if you do this, you are taxed on the income where you reside when you receive it, not where you earned it. So if he retires after year 10 and moves to FL, for example, he avoids CA taxes.

This is correct.

Edit: it’s also the reason the population of southern New Hampshire exploded when remote work took off during the pandemic.

Your job for a company in Boston that you now do from your 3,000+ sq ft home on the NH seacoast instead of your 900 sq ft condo in Cambridge? State-income-tax free. By moving north you gave yourself a 5% raise and cut your daily cost of living.

(I love Boston BTW, I just know a LOT of people that did this, or some variation of it, the last few years)

 

[Max Power]

If you don’t think players think long and hard about state income taxes, you’re very mistaken. Not only has this been well documented by agents and players themselves, we have a recent example of a player (Ohtani) structuring their contract perhaps in part to avoid paying state taxes:

https://www.sandiegouniontribune.com/business/nation/story/2023-12-15/shohei-ohtanis-contract-with-the-dodgers-could-come-with-bonus-of-mostly-avoiding-california-taxes

He’s almost certainly going to bolt CA at the end of the deal, when the real paydays begin. And based on how state tax codes are structured, California will be none the richer because of it.

I’m curious if we start seeing more of this when it comes to mega-deals handed out to international players.

Players don't give a shit about taxes and barely care about deferrals. They only want the top line number to be bigger than the other guy's. Ohtani took his deal the way it was not because of taxes, but because he wanted it to start with a 7. Yamamoto's deal didn't just happen to be $1 million more than Gerrit Cole's. It was intentional because he wanted it to be the "biggest" even if what he takes home is not.

 

[Arroyoyo]

Players don't give a shit about taxes and barely care about deferrals. They only want the top line number to be bigger than the other guy's. Ohtani took his deal the way it was not because of taxes, but because he wanted it to start with a 7. Yamamoto's deal didn't just happen to be $1 million more than Gerrit Cole's. It was intentional because he wanted it to be the "biggest" even if what he takes home is not.

What you said is true and the fact that many players do care about taxes is also true. Just see how angry players get when they have to pay taxes in states as a “visiting” player.

IIRC, Detek Jeter, several years ago, expressed annoyance with this.

They absolutely care.

 

[PedroisGod]

This is correct.

Edit: it’s also the reason the population of southern New Hampshire exploded when remote work took off during the pandemic.

Your job for a company in Boston that you now do from your 3,000+ sq ft home on the NH seacoast instead of your 900 sq ft condo in Cambridge? State-income-tax free. By moving north you gave yourself a 5% raise and cut your daily cost of living.

(I love Boston BTW, I just know a LOT of people that did this, or some variation of it, the last few years)

It might be different in California, but I asked a friend of mine who is a CPA in New York state and he told me that is not true. I've seen other people who claim to be accountants stating the same on Twitter. The income is taxed where it was earned, not where you're living when it's paid out.

 

[Granite Sox]

You've forgotten about the new Massachusetts Millionaire's Tax. State tax is 9% for any income over $1M. Almost doubles your Mass tax estimation...

Don't feel bad. Kike didn't realize it, either.

 

[Arroyoyo]

It might be different in California, but I asked a friend of mine who is a CPA in New York state and he told me that is not true. I've seen other people who claim to be accountants stating the same on Twitter. The income is taxed where it was earned, not where you're living when it's paid out.

If you work from home, it was earned from your home.

I’m 1,000% positive this is the case as I have benefitted from this for a decade.

 

[P'tucket rhymes with...]

When you see mega-deals signed in California, it’s always fun to consider how the real value to the player would differ if they had signed in other states.

He’ll pay ~$3,282,500 annually in California state taxes. Nearly $40 million over the course of the contract.

He would have paid $1,354,100 annually, and $16,250,000 over the course of the contract, if he signed the same contract with the Red Sox.

In other words, adjusting for location (and disregarding federal income taxes), his contract is worth $285,000,000 in California and it would have been worth $308,750,000 in Massachusetts.

Even if the Red Sox max offer was $300,000,000, after adjusting for state taxes (and once again disregarding federal as that’s the same no matter where you live) his “net” would have equaled that of signing for a team in California ($285,000,000).

If the Sox matched that $325m, he left $23,750,000 on the table to live in Ohtani’s shadow.

Now do the Marlins.

This will undoubtedly keep him awake at night.

 

[PedroisGod]

If you work from home, it was earned from your home.

I’m 1,000% positive this is the case as I have benefitted from this for a decade.

That's not what I was saying was incorrect. I'm talking about Ohtani being able to defer his money and have it tax free if he's living in Florida when it's paid out. The income was earned when he was playing baseball in California, regardless of where he's living when he's paid the deferrals.

 

[Big Papi's Mango Salsa]

It might be different in California, but I asked a friend of mine who is a CPA in New York state and he told me that is not true. I've seen other people who claim to be accountants stating the same on Twitter. The income is taxed where it was earned, not where you're living when it's paid out.

This is true. At least in the states you're referring to (and Massachusetts, by the way).

It's not like Yamamoto could have picked to play for the Sox and chosen to live in Nashua and not paid MA taxes.

 

[Arroyoyo]

You've forgotten about the new Massachusetts Millionaire's Tax. State tax is 9% for any income over $1M. Almost doubles your Mass tax estimation...

Good catch. This made me curious as to whether California has one as well, which they appear to be implementing, but only at 1% for earners over $50 million.

 

[Arroyoyo]

This is true. At least in the states you're referring to (and Massachusetts, by the way).

It's not like Yamamoto could have picked to play for the Sox and chosen to live in Nashua and not paid MA taxes.

He’d be *working* at Fenway Park, in Boston, not in Nashua. Which is why he’d have to pay Mass taxes.

When you work remotely in a tax-free state, you do not pay state income taxes.

Ohtani will be being paid to render no services in the state of California when he is paid out after his career is done. He will be in Japan.

 

[Arroyoyo]

That's not what I was saying was incorrect. I'm talking about Ohtani being able to defer his money and have it tax free if he's living in Florida when it's paid out. The income was earned when he was playing baseball in California, regardless of where he's living when he's paid the deferrals.

He will be earning $2 million per year those years. Thats what he will pay taxes on. After he leaves to Japan, those (much larger) payments will be while he is rendering no services, from Japan.

 

[RS2004foreever]

That's not what I was saying was incorrect. I'm talking about Ohtani being able to defer his money and have it tax free if he's living in Florida when it's paid out. The income was earned when he was playing baseball in California, regardless of where he's living when he's paid the deferrals.

Ohtani makes $50 million in endorsement deals - he will likely pay CA taxes on the amount earned in the US.

 

[Arroyoyo]

Now do the Marlins.

This will undoubtedly keep him awake at night.

This was good.

 

[Arroyoyo]

Ohtani makes $50 million in endorsement deals - he will likely pay CA taxes on the amount earned in the US.

This is also accurate.

 

[greenmountains]

It might be different in California, but I asked a friend of mine who is a CPA in New York state and he told me that is not true. I've seen other people who claim to be accountants stating the same on Twitter. The income is taxed where it was earned, not where you're living when it's paid out.

I'm not sure of California rules. But every individual taxpayer is a Cash Basis, not an Accrual Basis, taxpayer. Therefore income is taxed when paid, not when earned. It's why people defer a December payment / bonus until January. The tax on that bonus is not due until April of the following year. The Dodger's can't deduct the payment until the year paid (or the preceding year if it's paid within 75 days of the Dodger's year end).

The issue at hand is do the Dodger's have non California operations. In the case of the Silicone Valley firms, they have remote workers in other states and are deemed to have non California operations, even if this is just payroll. Once a company clips through a certain activity base (payroll for remote workers, physical presence, sales), it will be required to file income tax returns prorating some of it's activity to the remote state(s). From a tax standpoint, I'm not sure how the Dodgers will handle that, but I'm sure they will figure out a way to make it work. I'm confident the Dodgers will have strong tax accountants to make this work in a way that doesn't blatantly violate state law.

 

[PedroisGod]

He will be earning $2 million per year those years. Thats what he will pay taxes on. After he leaves to Japan, those (much larger) payments will be while he is rendering no services, from Japan.

It seems to be open for debate as to whether he will have to pay the tax on the deferrals. I just read this article here that has different experts saying different things. https://www.sfchronicle.com/sports/article/ohtani-contract-california-taxes-18552593.php

 

[Big Papi's Mango Salsa]

He’d be *working* at Fenway Park, in Boston, not in Nashua. Which is why he’d have to pay Mass taxes.

When you work remotely in a tax-free state, you do not pay state income taxes.

Ohtani will be being paid to render no services in the state of California when he is paid out after his career is done. He will be in Japan.

Ah, I thought we were talking about Yamamoto. Carry on.

I'm just pleased this is over and we can talk about players that might actually consider Boston.

 

[sezwho]

Yep. People keep saying this "closer to Japan" thing without realizing that the earth is round.

There very well could be cultural reasons (existing Japanese population, access to the right food, history of/current Japanese players), but a couple of extra hours in a first class seat isn't that.

Unless you are someone who travels internationally on a regular basis, I’m not sure how confident I’d be in this opinion.

Having traveled regularly to destinations 8, 10 and 12-14 hours away in my experience it’s been quite different, then there are added time changes.

Some folks handle this better than others, and while I’m not likely to ever end up in a charter, that extra couple hours up there can take the fight out even in relative comfort.

edit - imagine flying direct from Logan to Honolulu but instead of landing they put on the Irishman and kept flying.

 

[Arroyoyo]

It seems to be open for debate as to whether he will have to pay the tax on the deferrals. I just read this article here that has different experts saying different things. https://www.sfchronicle.com/sports/article/ohtani-contract-california-taxes-18552593.php

The fact that the Dodgers and Ohtani may categorize it as “retirement income” to add another layer of complexity and help dodge (pun intended) California taxes further is fascinating to me.

That article claims he may save $98 million in taxes. And some people here are claiming players don’t care about taxes. Do you know how many youth ballparks, schools, shares in professional teams, etc just the capital gains on $98 million could build/buy?

 

[Patsfan1983]

The fact that the Dodgers and Ohtani may categorize it as “retirement income” to add another layer of complexity and help dodge (pun intended) California taxes further is fascinating to me.

That article claims he may save $98 million in taxes. And some people here are claiming players don’t care about taxes. Do you know how many youth ballparks, schools, shares in professional teams, etc just the capital gains on $98 million could build/buy?

im a tax accountant. Setting it up as a NQDC would be tricky given his age, so I highly doubt it ends up non-taxable.

I also do some players tax returns (more backup/back of the roster types). The home state gets the full amount of wages earned but then it’s split by any state you play in during the year. Ala I had a return for a taxi squad guy for hockey who paid taxes on 30 states plus cities as some cities tax you as well. There is typically a credit for states paid to other states/jurisdictions as mentioned however.

 

[Arroyoyo]

im a tax accountant. Setting it up as a NQDC would be tricky given his age, so I highly doubt it ends up non-taxable.

I also do some players tax returns (more backup/back of the roster types). The home state gets the full amount of wages earned but then it’s split by any state you play in during the year. Ala I had a return for a taxi squad guy for hockey who paid taxes on 30 states plus cities as some cities tax you as well. There is typically a credit for states paid to other states/jurisdictions as mentioned however.

Yes, what you’re talking (splitting by state because they are physically playing in different states) about is exactly what I’ve read players complaining about (as mentioned earlier, I remember Jeter mentioning how annoying he found it years ago).

If the Dodgers and Ohtani fail on classifying it as retirement income, and if they haven’t categorized the income (post-retirement) as some kind of “earned” income while he’s back in Japan, would he then (post retirement) owe back taxes to all states he played in when the “whole” of the income was earned?

So, if the income isn’t considered “earned” while he’s retired in Japan in 2034 or whenever it is, at that point, when he played in Boston in 2028, he would then have to figure out what year of that post-retirement income belongs to FY 2028 and pay Massachusetts, wouldn’t he?

I couldn’t imagine trying to manage this. If California (and other states) successfully argue Ohtani’s post-career checks - when he’s back in Japan - should be taxed, Ohtani may end up on the FBI’s most wanted list within five years of retirement.

 

[Patsfan1983]

Yes, what you’re talking (splitting by state because they are physically playing in different states) about is exactly what I’ve read players complaining about (as mentioned earlier, I remember Jeter mentioning how annoying he found it years ago).

If the Dodgers and Ohtani fail on classifying it as retirement income, and if they haven’t categorized the income (post-retirement) as some kind of “earned” income while he’s back in Japan, would he then (post retirement) owe back taxes to all states he played in when the “whole” of the income was earned?

So, if the income isn’t considered “earned” while he’s retired in Japan in 2034 or whenever it is, at that point, when he played in Boston in 2028, he would then have to figure out what year of that post-retirement income belongs to FY 2028 and pay Massachusetts, wouldn’t he?

I couldn’t imagine trying to manage this. If California (and other states) successfully argue Ohtani’s post-career checks - when he’s back in Japan - should be taxed, Ohtani may end up on the FBI’s most wanted list within five years of retirement.

it’s not so bad most teams will track it for their players and any accounting firm worth a damn(Ohtan is likely uses a big 4 or Baker Tilly who is bigger in Asia) will know about the deferred comp and keep state apportionment figures and use that. I could also argue it all goes to CA.

Players do care. I have clients ask about tax projections based on where they might sign all the time. Maybe the little guys care more though. We recommend clients avoid CA/NY unless they really want to play there (100% based on tax implications)

The bigger factor with Ohtani is to make the deferred comp non-taxable he’d have to fully retire ala no side deals no contracts with fanatics/topps or panini. He keeps earning he’s deemed not retired and the NQDC is thrown out with large penalties.

 

[Arroyoyo]

it’s not so bad most teams will track it for their players and any accounting firm worth a damn(Ohtan is likely uses a big 4 or Baker Tilly who is bigger in Asia) will know about the deferred comp and keep state apportionment figures and use that. I could also argue it all goes to CA.

Players do care. I have clients ask about tax projections based on where they might sign all the time. Maybe the little guys care more though. We recommend clients avoid CA/NY unless they really want to play there (100% based on tax implications)

The bigger factor with Ohtani is to make the deferred comp non-taxable he’d have to fully retire ala no side deals no contracts with fanatics/topps or panini. He keeps earning he’s deemed not retired and the NQDC is thrown out with large penalties.

This is a great post and awesome insight. Thanks for sharing.

My guess, based on what you said, is he plans on flying out to his beachside mansion in Japan and disappearing from all US media within an hour of his final game.

If you’re a US player/citizen - particularly a top talent - this must, on some level, annoy the shit out of you.

 

[HangingW/ScottCooper]

im a tax accountant. Setting it up as a NQDC would be tricky given his age, so I highly doubt it ends up non-taxable.

I also do some players tax returns (more backup/back of the roster types). The home state gets the full amount of wages earned but then it’s split by any state you play in during the year. Ala I had a return for a taxi squad guy for hockey who paid taxes on 30 states plus cities as some cities tax you as well. There is typically a credit for states paid to other states/jurisdictions as mentioned however.

A follow up to this. I have a MiLB client whose W-2 income exclusively listed a single state. I suspect at the MLB level that will change.

 

[Patsfan1983]

A follow up to this. I have a MiLB client whose W-2 income exclusively listed a single state. I suspect at the MLB level that will change.

Just because his W-2 doesn't list a state, does not mean he doesn't owe tax to a state. However minor leaguers typically don't make enough for this to matter

 

[absintheofmalaise]

Broke this out of the Yamamoto thread so the information didn't get lost.

 

[nighthob]

It might be different in California, but I asked a friend of mine who is a CPA in New York state and he told me that is not true. I've seen other people who claim to be accountants stating the same on Twitter. The income is taxed where it was earned, not where you're living when it's paid out.

If you work remotely, theoretically, you're earning the income where you live. However, as a writer, I do know that CA considers any work done for a movie studio to be work in CA and taxed accordingly. I have no idea if they carry that principle past the entertainment industry.

 

[Preacher]

Unless you are someone who travels internationally on a regular basis, I’m not sure how confident I’d be in this opinion.

Having traveled regularly to destinations 8, 10 and 12-14 hours away in my experience it’s been quite different, then there are added time changes.

Some folks handle this better than others, and while I’m not likely to ever end up in a charter, that extra couple hours up there can take the fight out even in relative comfort.

edit - imagine flying direct from Logan to Honolulu but instead of landing they put on the Irishman and kept flying.

I flew Seoul to Logan and back a couple months ago. The flight back was over 15 hours but flying from LAX to Seoul is like 13 hours. It’s not a huge difference. I wouldn’t want to do either every other week but a few times a year would be fine.

 

[wade boggs chicken dinner]

When you work remotely in a tax-free state, you do not pay state income taxes.

BTW, this isn't always true and in fact, in the NH/MA example you used upthread, it wasn't true for a couple of years when MA adopted regulations requiring employers to withhold monies for remote workers.

Those regulations expired I understand in 2021 but other (not a lot) jurisdictions do tax workers where they work, regardless where they live. https://taxnews.ey.com/news/2023-0334-new-hampshire-law-prohibits-nonresident-state-income-tax-on-residents-working-remotely-for-out-of-state-employers