NBA doesn’t view state tax disparity as competitive disadvantage

Sometimes it’s the weather. Sometimes it’s the scenery. Sometimes it’s the nightlife or the endorsement potential or spouse-and-family priorities. Sometimes it’s even the basketball, the rest of the roster, the chance to win.

And sometimes it’s the money.

How much does staying in New York cost Carmelo?  (Nathaniel S. Butler/NBAE)

How much does staying in New York cost Carmelo? (Nathaniel S. Butler/NBAE)

There are a skidload of reasons why NBA free agents choose the destinations they choose and the league can’t do much (beyond the collectively bargained rules already in place) to control them. But money is something the NBA is very good at controlling. From the maximum salary a superstar can earn to the minimum wage paid to some undrafted rookie, from the “floor” that a team must spend on its player payroll to the luxury-tax threshold that acts as a de facto hard salary cap for most owners, the league manages to the dollar its costs, cash outlays and other budgets and expenditures that impact competitive balance.

So what’s up with the state tax disparity?

When Washington free agent Trevor Ariza agreed to a four-year, $32 million deal with Houston earlier this month — accepting essentially the same salary the Wizards offered him — multiple outlets noted a big difference in Ariza’s take-home pay with the Rockets. The lack of a state tax in Texas vs. the local taxes (and higher cost of living) in and around Washington, D.C., meant the veteran wing player would pocket as much as $3 million more by working and living in Houston.

And when Carmelo Anthony was making the VIP rounds on his team-selection tour that landed him right back in New York, SI.com’s Michael McCann and tax expert Robert Raiola painstakingly crunched the numbers to account for federal, state, city and “jock” taxes (most NBA markets require visiting players to pay local taxes on the portion of their income earned within their jurisdiction).

Their findings? The “same” $95.9 million/four years offer to Anthony from Houston, Miami and Chicago would have differed, in what he actually took home, by as much as $1.4 million. Yet because of New York’s high state and city tax rates, a maximum offer from the Knicks – $129.1 million/five years, or $33.2 million more than what those other clubs could have paid him – would have been whittled down to $66.7 million in net wages.

The net gap, thanks to tax liabilities, would have been less than $13 million compared to what the Bulls could have paid him (had Chicago cleared maximum cap space) and about $11.4 million more than the Heat or Rockets would have paid.

Remember, too, that just four summers ago, the decisions by LeBron James and Chris Bosh to join Dwyane Wade in Miami weren’t made in a tax vacuum. Much attention was paid to their willingness to sign for slightly less than maximum salaries, but it was mostly tax experts, academicians and NBA insiders who tracked the actual savings James and Bosh realized by shedding the liabilities of Ohio and Canada, respectively.

So what are teams and fans to do in places such as Milwaukee, Minnesota or Portland, where the highest marginal income tax rates in 2014 are 7.65 percent, 9.85 percent and 9.9 percent respectively? Or in Sacramento, which doesn’t benefit from the glamour factors as the franchises in Los Angeles or the Bay Area but still is saddled with a 13.3 percent tax rate on high earners? A million here, a million there and pretty soon you’re talking real money compared to what the Rockets, Spurs, Mavericks, Heat, Magic and Grizzlies can toss at free agents without state taxes.

Apparently, there’s little interest and no movement at the league’s highest levels to equalize the marketplace.

That’s a departure from what was done about a dozen years ago for the Toronto Raptors, when the NBA took on that franchise’s financial disadvantages, which stemmed not only from Canadian tax rates but an unfavorable (unfavourable?) exchange rate that left Raptors players with less money than their U.S. counterparts.

Shortly after Vancouver moved to Memphis in 2001, and with Toronto’s long-term sustainability in doubt, the NBA provided assistance to the Raptors and their players with a stipend reported at $2 million and other concessions. The exchange rate, however, has evened out since then and Toronto, though it still earns its revenue in Canadian currency, conducts its NBA business – salary cap figures, player payroll – in U.S. dollars. The tax rates for Toronto residents are said to be no better, perhaps, but no worse than for wage earners in many U.S. states.

As for adjusting every team’s cap ($63.065 million for 2014-15), tax level ($76.829 million) and minimum salary ($56.759 million) to factor out state taxes, a league source said the NBA has no such plans.

What might seem to be a simple math exercise grows more complicated when other differences between markets – not just the fuzzy intangibles or “quality of life” preferences – are considered. Property taxes, sales taxes, real estate prices and overall cost-of-living adjustments might cry out for attention, too.

The NBA, already deep into luxury-tax and revenue-sharing policies it says were designed for greater competitive balance, could wind up with a crazy quilt of figures, rules and bottom lines. Instead of point guards and two-way wing players becoming the darlings of the league, it might be a bunch of tax attorneys for whom fans start rooting.

Then there’s this: Do the Lakers and the Knicks really need any sort of cap advantage to be more desirable destinations than they’ve traditionally been?

21 Comments

  1. TacoC says:

    I would like to see that computation. Seems a little bit high to me. The maximum federal tax rate is 39.6% and the max NYS and NYC rates are 8.97% and 3.65% respectively. Considering you can deduct the NYS and NYC tax on your federal return you get an overall tax rate of around 47%.

    Note that most of the tax hit comes from the federal which applies no matter where you live. As someone else pointed out most of these guys have sophisticated deferred comp arrangements which at a minimum defers the tax hit until many years into the future.

  2. ChrisfromthaDtothaPHX says:

    I’ve said this repeatedly.. This is one of the primary reason why no one hardly wants to go to Los Angeles.

    New York has upside over taxes because of Phil Jackson. Los Angeles with bad ownership and a management team that is subjective to the ownership, has a huge disadvantage when you look at the tax factor.

    With the US dollar being as tight as it is.. Melo making virtually $66 million vs 92 million tax free is a HUGE eye opener. I’m quite shocked he stayed based on those numbers, but Melo can make up the difference in endorsements.

    Still though.. That’s a huge disadvantage. Even when you are making tens of millions up to $100 million. Money is Money.

  3. Will says:

    MAN! Melo’s max offer of $129.1 million ends up being $66.7 million after taxes! Anybody complaining about athletes being overpaid needs to keep quiet, because he’s giving up close to a dollar in taxes for every dollar he takes home – if I were Melo I’d be keeping a close eye on the federal treasury – to make sure that money is put to good use.

  4. Jpkoff says:

    Solving this tax problem would be so easy… Hey NBA bosses, i know you’re reading every comment here so i’ll tell you what.
    Have all teams pay player contracts directly to the NBA. Then the NBA pays all players, which evens it out. That’s it.

  5. Whom says:

    “His WIFE.” Those two words would have summed up this article and his intentions better then anyone could.

    • cp10 says:

      lol. Ultimately where the strings end. Many times it goes all the way to the mother-in-law and even grandmother-in-law; for women truly rule the earth.

  6. MG says:

    Melo isn’t player that take large salary

  7. avgeragejoe says:

    Must be hard to pay all those taxes…darn gov’t taking away hundreds of thousands of hard earned dollars out of an NBA player’s 100 million dollar yearly income from Commercials and Endorsements.

  8. Dave says:

    See, this is why we need an NBA team in South Dakota. We now have an arena and practice center for it. We have almost the lowest cost of living anywhere in the country as well as NO STATE INCOME TAX! Seriously, free agents forget Minneapolis…. come to SD!

  9. who cares these guys are way richer than the average joe

  10. Elijah 41 says:

    For Melo money is more important than to win championships…..what a loser!

    • lazer says:

      Oh. You know ‘Melo? And you were part of his decision making? I love how people think they understand why a person, heck any person, makes the decisions they do. Where do you come off knowing what Carmelo’s mind set was when he came to his decision.

  11. what the Bull(s) says:

    in sports the players are earning way too much money…for example bosh is making over $100 Million in 5 years…what will he do with this money? In other parts of the world people are die because of hunger. top free agents should not make over 10 Million in five years.

    • Jae Porter says:

      Uou make a compelling point but it would never work. The euro, Asian & other overseas leagues would just offer more. 6 years ago, a euro league team offered kobe 40mil a year as well as a boat & house

    • James says:

      You are a fool so we’re should all the extra money that they didn’t pocket go to. The owners pocket I guess. Go ahead and give it to the 1 percent richest people in the world the sure could use it.

  12. desinformation says:

    they are desperate, the melo propaganda is in full mode, they are insulting us yes, but it’s almost touching how innocent they are. melo’s love, taxes.. lol. try again, i’m sure melo is not anthipathic enough

  13. cp10 says:

    Good article.

  14. Joe says:

    New York wants to tax all income regardless of where it is earned. On top of a NY state tax, they have to pay a NY city tax as well. Where a taxpayer resides and does “business” is important for tax purposes too. This is why agents and CPA’s are important because they can use deferred compensation plans and non qualified plans to mitigate these taxes.

  15. harrythehawk says:

    Yeah, you got it right. Your still stinkin rich no matter where you play.

  16. David says:

    So, if a team only plays 41 games at HOME, the home state tax only applies to half their earnings. Of the 41 AWAY games, then at least 29 would be in the same markets since each team plays every other team at least once in the season. So the difference in the AWAY taxes would be based on where the other 12 AWAY matchups take place. Did I get that right?