David R. Henderson  

Lebron and State Taxes

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I was going to write on the tax advantage to LeBron James in going to income-tax-free Florida until I started to research it and see that, earlier today, Aaron Merchak at the Tax Foundation beat me to it. He did a nice job, but he left out a huge factor that's more important than what he covered.

What he got right is that LeBron would get a tax break "only" for half his 82 games. State tax authorities more and more are catching high-paid athletes and even consultants in their tax webs. Play an away game at Madison Square Garden and you're screwed by the New York state and New York city tax authorities. They'll tax you on 1/82 of your salary.

What Merchak got omitted is the huge income-tax advantage on LeBron's non-athlete earnings. He could claim those as income he made in Florida and I would bet that those earnings are a multiple of his pay from whatever team hires him.

A related story: A friend of mine who's a friend of Rush Limbaugh told me that when Rush dropped his daily TV show, which was very successful, and moved from NYC to Florida, his loss in income from the lucrative TV show was less than his gain in after-tax income from moving to Florida.



COMMENTS (9 to date)
R. Pointer writes:

Why can't they write the contract that he plays away games for free and double his "appearance" fees for florida games?

Jody writes:

Link appears broken (resolves to http:///). I think this is the right link:
http://www.taxfoundation.org/news/show/26503.html

David R. Henderson writes:

@Jody,
Thanks. Fixed.
@R. Pointer,
Because the tax authorities in NY and elsewhere would see through that in a New York minute. A more serious possibility, though, is to argue that he is being paid for "a body of work," including practices, and that, therefore, a day in NY should count for 1/150 of a year's income rather than 1/82. (The idea is that he works for Miami in a non-playoff year for about 150 days.)

hutch writes:

does he get taxed for half of his 82 games or would he get taxed for 41 days of a 365 day year worked in another state? are the contracts written that he gets paid piecemeal? just curious.

Yancey Ward writes:

R.Pointer beat me to the question. This has to have been tried and adjudicated.

Mark writes:

Clever suggestion R. Pointer.
From a practical stand point athletes get hurt often. Suppose the manager(baseball) sits a guy out of a home series because of a small injury. Would he still get an appearance fee even if he didn't appear? Suppose he gets paid an extra 100,000 dollars for hitting 30 home runs in a season. Does New York get a percentage of that bonus? If not, this may be how to avoid much of those taxes.

Patrick R. Sullivan writes:

How about a contract that pays LeBron the minimum wage for playing away games, but he gets a percentage of the gate for Miami home games.

wlu2009 writes:

"How about a contract that pays LeBron the minimum wage for playing away games, but he gets a percentage of the gate for Miami home games."

I'm pretty sure this wouldn't work either. Tax authorities would be probably jump all over it and write legislation (if it doesn't already exist) to fix it. Otherwise, everyone's company would be headquartered in florida, they would work for minimum wage in an income tax state and then agree to an exhorbitant amount for one day of work a year in Florida. This kind of tax arbitrage, if successful, would basically make income tax uneforcable at the state level...not the worst thing in the world.

wlu2009 writes:

"How about a contract that pays LeBron the minimum wage for playing away games, but he gets a percentage of the gate for Miami home games."

I'm pretty sure this wouldn't work either. Tax authorities would be probably jump all over it and write legislation (if it doesn't already exist) to fix it. Otherwise, everyone's company would be headquartered in florida, they would work for minimum wage in an income tax state and then agree to an exhorbitant amount for one day of work a year in Florida. This kind of tax arbitrage, if successful, would basically make income tax uneforcable at the state level...not the worst thing in the world.

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