Teams in Texas, Florida, Nevada, and Washington state may have become more attractive destinations for free agents following the enactment of tax law changes.
Deductions for state and local taxes are capped at $10,000 in the year starting Jan. 1 for married couples filing jointly. That has a huge impact on athletes with seven- and eight-figure salaries.
Baseball agent Scott Boras, who is negotiating big-money deals this offseason for free agents J.D. Martinez, Eric Hosmer, Mike Moustakas, Jake Arrieta and Greg Holland, had this to say:
“Obviously, the zero income-tax states have now more of an advantage than before."
Geography, family comforts, playing time and winning remain the most important factors for many.
“I understand the tax differential issue but have rarely thought it was outcome determinative in where a player signs.”
- Rob Manfred
But the teams in states with a higher percentage of take-home pay make their advantage known.
“All teams in tax-free states do.”
- Mavericks owner Mark Cuban
Giancarlo Stanton, who was recently traded to the Yankees, will now have to pay over a million dollars in tax income after his move to New York.
The $10,000 limit also includes deductions for property and sales taxes — large numbers for the most prominent athletes.
At the same time, the top tax rate has been lowered to 37 percent for single filers earning more than $500,000 and married couples filing jointly earning more than $600,000. That is down from 39.6 percent for single filers earning more than $418,400 and married couples filing jointly earning more than $470,700.
For baseball, the AL West becomes the most attractive for tax status. The World Series champion Houston Astros, along with the Texas Rangers and Seattle Mariners, all have no state income tax. That means a player on one of those teams would play 99 or 100 of 162 games in states with no tax.
Rangers President of Baseball Operations Jon Daniels calls the tax advantage:
"More of kind of a side benefit than a feature. Some players and some agents care more than others. Some have been more focused on the sticker prices, especially agents that are paid on the gross. We try not to make it too much of a focal point of our recruiting efforts. I think when it’s pushed too heavily it can be a turnoff.”
Deals in all four major North American leagues are evaluated for their tax implications. Agent Joseph Linta, who negotiated Baltimore quarterback Joe Flacco’s contract,, said this:
“The state with no income tax would always win the ties."