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Tuesday, November 27, 2007

New York Tosses Tax Bean Ball at Jeter

New York is quite well known for having an outrageous tax burden. In fact, on SBE Council’s “Small Business Survival Index 2007 Tax Scores,” the Empire State was more like the Vampire State, ranking 44th among the 50 states and District of Columbia.

But just in case anyone out there forgot how costly New York’s tax system is, the state’s tax division is providing a high profile reminder in a tax case against New York Yankees shortstop Derek Jeter.

I wrote about this in a Newsday column on November 26 titled “Zealous tax collectors bug Jeter.” The column noted:

“Keep in mind that Jeter pays New York income taxes on his Yankees salary. For the three years in dispute, Jeter earned $12.6 million in 2001, $14.6 million in 2002 and $15.6 million in 2003, according to Baseball- 

In addition, most states impose a ‘jock tax.’ Players and team staff must break down their salaries per game to pay income taxes to states and, in some cases, cities for each road game. In turn, home states provide credits for away-game taxes paid. I thought my taxes were complicated. Imagine filling out tax returns for as many as 14 states. (Or, you know, paying your accountant to do it for you.)

 New York claims Jeter's primary residence during these three years was his Manhattan apartment, not his Florida home, which is what Jeter claims. 

Florida's wise elected officials impose no personal income tax. Far dimmer politicians in New York inflict both a state and city income tax. During the period in question, the combined state and city tax rate topped 12 percent. If a New York City resident, then all of Jeter's income - such as endorsement and investment earnings - could be subject to New York income taxes, not just his Yankees salary.”

The column goes on to illustrate how arbitrary and invasive the income tax can be. For example:

“To show that Jeter owes more in New York taxes, the state's Division of Taxation charges that the shortstop ‘keeps items near and dear in his New York apartment.’ The division also notes that Jeter has ‘immersed himself in the New York community’ and ‘made numerous statements professing his love for New York.’ 

Be careful about those feelings of community and love. The taxman is watching. And what's the deal with ‘items near and dear’ in his apartment? That's a creepy case of Big Brother. Jeter and others in residency disputes with tax authorities must fight back against such vague issues.”

But in the end, this is more than a dispute between New York and a baseball star:

“When it comes to baseball, New York taxes might be the price you pay for playing with the vaunted Yankees - though that's offset by the salary premium, given the team's large payroll. But other people, including entrepreneurs who create economic growth and jobs, don't need to be in New York. The Jeter tax case is a public relations nightmare for the state. It's another glaring reminder about New York's hostile tax climate. The tax bloodhounds might get Jeter in the end, but how many individuals, businesses and jobs will be lost to New York during the pursuit?”


Anonymous said...

The toronto Raptors (NBA) face the same problem with players not wanting to pay Canadian tax rates. That may also be why the Vancouver team moved to Memphis a few years ago.

This article is also a great ad for the Tampa Bay D Rays and the Florida Marlins. Makes you wonder why they don't use the Florida tax laws to attract more big time players?

Raymond J. Keating said...

Thanks anonymous. I also did an analysis a few years ago on the golfers playing in the U.S. Open. Most U.S. players lived in states with no income tax.