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The tax impact of where you play baseball.

The World Series of Jock Taxation

The Phillies are back in the World Series for the first time in 13 years after a thrilling win against the Padres on Sunday. They’ll face the Houston Astros, who finished with the best record in the American League, and who will be making their fourth World Series appearance since 2017. The Astros won it all in 2017 under much scrutinized circumstances as they became embroiled in a cheating scandal soon after. The Astros also call Houston, Texas home, a city and state which has no individual income tax. As if fans needed another reason to root against the Astros, because of how professional sports taxation works, and because of baseball’s unbalanced schedule, the Astros have the most favorable tax environment in the entire sport.

The Jock Tax

Professional athletes are subject to ‘the jock tax’, the colloquialism for how athletes are subject to tax in every jurisdiction in which they play. The home team of a player has a substantial role in determining his effective tax rate but other factors loom large as well: the location of spring training and the locations of road games. Spring Training games take place in either Florida or Arizona – while Arizona has one of the lowest individual income tax rates in the country at 2.98%, it’s impossible to beat the 0% that Florida boasts. Similarly, if a team plays a significant number of road games in high tax jurisdictions, the effective tax rate increases. That becomes important because baseball has an unbalanced schedule where teams play their interdivisional rivals more often than teams outside of their division.

Where you play matters. Players are ultimately subject to tax in their state of residency and can then claim credits for taxes paid to other states.

Tax-Free States

It just so happens that some of the other teams in the Astros division also play in tax-free states. The Astros have spring training in Florida for 20 days. They spend 81 home games and five off-days in Texas. They played 19 road games against the division-rival Seattle Mariners and Texas Rangers this year as well (Washington state also does not have an individual income tax), and three more against the Tampa Bay Rays.

In total, of the 185 duty days allocable over the course of a major league season, Astros players played “tax-free” 128 times. Sure, the other two teams in their division are the Oakland Athletics and Los Angeles Angels, who play in California, which has the highest top tax bracket of any state in the country. But California has a graduated tax rate and the level of income allocable to California for most players would not result in the top tax bracket being utilized.

Here is a rough sketch of what the duty day allocation would look like for the Phillies and Astros in the 2022 major league baseball season:

Duty Day Allocation

PHILLIESDAYSASTROSDAYS
Home/Philadelphia84Home/Houston84
Miami Marlins10Los Angeles Angels10
Colorado Rockies3Seattle Mariners10
New York Mets9Texas Rangers9
Seattle Mariners3Toronto Blue Jays3
Los Angeles Dodgers4Minnesota Twins3
Atlanta Braves9Washington Nationals3
Milwaukee Brewers3Boston Red Sox3
Washington Nationals9Oakland Athletics9
Texas Rangers2Kansas City Royals3
San Diego Padres4New York Yankees3
St. Louis Cardinals4New York Mets2
Toronto Blue Jays2Cleveland Guardians4
Pittsburgh Pirates4Chicago White Sox4
Cincinnati Reds3Atlanta Braves3
Arizona Diamondbacks3Detroit Tigers3
San Francisco Giants3Tampa Bay Rays3
Chicago Cubs3Baltimore Orioles3
Houston Astros3Philadelphia Phillies3
Spring Training – Florida20Spring Training – Florida20
TOTAL185TOTAL185

Tax Free Games

“Tax-free” is in quotations as the analysis is more nuanced – players are ultimately subject to tax in their state of residency and can then claim credits for taxes paid to other states. For the purpose of this exercise, however, assume that players become full-time residents in the city and state of the team for which they play.

Under that assumption, an Astros player would have an effective tax rate of roughly 2.15% in 2022. Compare that to the Phillies, who would have an effective tax rate of 5.27%, over twice as high!

Know Impact of The Jock Tax When Negotiating

Why is that important? Imagine a free agent player mulling equivalent $10 million offers from both the Phillies and Astros. The potential difference in taxes would be over $312,000. Various other factors play into decisions of where to sign but players absolutely consider the tax impact when their agents negotiate on their behalves.

Game One of the Fall Classic is this Friday night. The Phillies are considered underdogs and the Astros have yet to lose a single playoff game. If the Phillies needed any more motivation to win their first championship since 2008, they need look no further than at how much less in tax the players on the other side are potentially paying.

Questions?

As always, should you have questions about this or any other topics related to your personal or business situation, please contact us at any time.

To learn more about the jock tax, please click here.

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