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Cliff Lee and Taxes

December 15th, 2010 Leave a comment Go to comments

I’m not just a tax dood. Feel free to call me sports dood. When the opportunity comes to discuss both interests, I’m all over it.

As most sports fans are aware, left-handed pitcher Cliff Lee recently signed a 5-year contract with the Philadelphia Phillies for $120 million guaranteed. The Phillies top four starters: Roy Halladay, Cliff Lee, Roy Oswalt, Cole Hamels. As a Mets fan, it is difficult to get excited about the upcoming year, despite our new front office and manager, by looking at those four names.

So, we take what we can to feel a little better about dealing with the presence of the Yankees of the National League. Professor Edward Zelinksy is a tax professor at Cardozo Law School, and he recently provided his tax take on Cliff Lee’s new contract:

Cliff Lee’s decision to go to Philadelphia is interesting from a state and local tax perspective. It had appeared that Lee’s choice was between the Yankees (in a state with some of the nation’s highest state income tax rates) and the Rangers (in a state with no state income tax). Presumably, the Yankees’ bid was designed to offset some or all of the tax disadvantages of playing in New York.

The Phillies confronted essentially the same tax competition with the Rangers as did the Yankees. Pennsylvania is a high tax state in which to live and work. The City of Philadelphia has been among the most aggressive municipalities taxing nonresident athletes for the days they play in Philadelphia.

The obvious lesson is that taxes aren’t everything. The sublter lesson is that the Phillies likely paid more for Lee than they would have had they been located in a low tax state and think they will recoup in ticket sales or other revenue streams the extra amounts they pay Lee because of the Pennsylvania tax burden. Thus, in the final analysis, that burden likely falls on the fans.

The burden falls on the fans. Perhaps Professor Zelinsky is a fellow Mets fan, perhaps not. Either way, I’m not quibbling with his “subtler lesson.”

To date, this blog has not touched upon state and local taxes. Expect that to change soon. State and local taxes are very relevant for gambling winnings.

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