On April 2, baseball’s reigning home run king, Giancarlo Stanton, will stride to the plate at Yankee Stadium for the first time wearing a Yankees uniform and will almost certainly receive a standing ovation from the New York City crowd. In that moment, he’ll probably be thrilled that he put aside his no-trade rights and approved an offseason deal from the Miami Marlins to Major League Baseball’s most successful team.
That thrill might fade further down the road, however, when Stanton gets the tax bill for his work in Yankee pinstripes. Changing teams from one based in Florida, where there’s no income tax, to New York, where the top income tax bracket is 8.82 percent, is likely to cost him about $1.1 million in 2018 alone.
That’s according to Steven Goldstein, audit partner at Grassi & Co., where he’s responsible for the tax bills of a number of professional athletes, although Stanton is not one of his clients. Over the life of his contract, Stanton could lose $13 million to income taxes because of the move to New York – or more.
“Playing 81 [home] games in New York, he’s going to have to allocate at least 50 percent of his salary to [the state of] New York. If you take half his salary, $25 million, [that’s] $12.5 million allocated to New York, $12.5 million allocated to other cities and states. Just in New York alone, that’s an additional $1.1 million [in taxes in 2018].”
Professional athletes are subject to what are known as “jock taxes,” whereby their income is taxed by each state in which they play games, rather than just the state where they live or where their team is based. That means that Stanton already had a substantial tax burden while a member of the Miami Marlins because of the 81 road games he plays each year across the country. If the schedule took him to New York to play the Mets or Yankees, for instance, that 8.82 percent state income tax would rear its head. But going from a few road games each year to 81 home games in high-tax New York dramatically increases the cost.
Another aspect to keep in mind - Stanton’s contract runs through 2028, increasing to an annual value of $32 million in 2023 before starting to decline again in the last couple of years. So that discrepancy between states’ tax rates can really start to pile up, said Ryan Losi, executive vice president of Piascik, another accounting firm that caters to professional athletes.
“It starts getting into double-digit differences. Especially the longer the contract, the more dollars you’re giving up.”
Another Florida-based baseball player is in a similar situation. Evan Longoria, All-Star third baseman for the Tampa Bay Rays, was traded this week to the San Francisco Giants. Longoria notably gave the Rays a "hometown discount" when he signed his current contract, meaning he took less money to stay with the team than he could've received elsewhere.
Now that decision will come back to bite him as he goes from a state with no income tax to one with a 13.3 percent rate in California. According to Goldstein, that will likely cost Longoria about $900,000 in extra taxes in 2018 off his $13.5 million salary - almost as much as Stanton stands to lose, despite having a much lower pay rate. Longoria's contract runs through 2023, with a remaining balance of $94 million.
"The move to California will definitely hit him in the pocketbook."
Goldstein and Losi each pointed out another aspect that can make the tax headache even bigger for Stanton and Longoria – where they establish residency. The change in uniform affects Stanton’s income tax bill from money he earns from the Yankees, but if he is found to be a New York resident, all sorts of other income will become fair game for the state’s revenue agency.
“Just because he does get traded, it doesn’t necessarily mean he’s a tax resident. Dividends, interest, etc., [are taxed by] the state of residency. If he’s going to claim his residency is still Florida, all of his non-player contract earnings will be tax-free.”
But if Stanton chooses to go that route and say he’s not switching his residency to New York, that could be a tough sell. New York state has been known to pursue athletes that it believes have spent 183 days or more within its borders – in fact, former Yankees legend Derek Jeter, now the owner of the Miami Marlins, was the subject of such an action during his playing days.
“They tried to argue that Jeter was a New York resident two years before he claimed he was. Ultimately, he prevailed.”
It gets worse, potentially, for Stanton. On top of the federal and state hits to his income, New York City has its own income tax levy.
“If he spends more than 183 days in New York or New York City, he could be considered a New York City resident and pay another 4.5 percent on top of state taxes. He’s going to have to make sure he spends less than 183 days as a resident in New York City.”
To Goldstein, there’s one aspect to Stanton’s situation that makes this move worthwhile – the opportunity for other income in the nation’s largest city.
“The opportunity for endorsements to make up the shortfall – he’s playing for the most prestigious organization in the sport. His contract is supposed to run until 2028. He has significant opportunity for endorsement.”
By contrast, Losi pointed out, there’s another group of pro athletes for whom endorsements are minimal or non-existent – minor-league players. But they still generally have to cross state lines to play and can have tax returns almost as complex as the 2,000-page documents he’s seen for All-Star caliber players.
“[Minor-leaguers] can’t afford us, but they still have these obligations. At AA, they’re only making $35,000 to $55,000 at that level. [The rules] apply regardless of the dollar amount.”
There is one consolation for Stanton if the tax burden in New York gets to be too much for him – there’s a provision in his contract that would allow him to opt out and become a free agent in three years, after the 2020 season. At that point, he could re-sign with the Miami Marlins or look at the Tampa Bay Rays, Texas Rangers, Houston Astros or Seattle Mariners, since Florida, Texas and Washington are all states with Major League Baseball teams and no state income tax.
And if he’s still an elite-level player by then, at age 32, he could simultaneously increase his paycheck and decrease his tax burden.
“It’s not what you make, it’s what you keep."