Salary Equalization for Baseball Free Agents Confronting Different State Tax Regimes

Journal of Sport Management, Forthcoming

Posted: 27 Mar 2013  

Stan Veliotis

Fordham University - School of Business

Date Written: September 26, 2012

Abstract

This paper derives equivalent gross salary for Major League Baseball free agents weighing offers from teams based in states with different income tax rates. After discussing tax law applicable to professional sports teams’ players, including “jock taxes” and the interrelationship of state and federal taxes, this paper builds several models to determine equivalent salary. A base-case derivation, oversimplified by ignoring non-salary income and Medicare tax, demonstrates that salary adjustment from a more tax expensive state’s team requires solely a state (but not federal) tax gross-up. Subsequent derivations, introducing non-salary income and Medicare tax, demonstrate full Medicare but small federal tax gross-ups are also required. This paper applies the model to equalize salary offers from two teams in different states in a highly stylized example approximating the 2010 free agency of pitcher Cliff Lee. Aspects of the models may also be used to inform other sports’ players of their after-tax income if salary caps limit the ability to receive adequately grossed-up salaries.

Keywords: salary equalization, tax planning, state income tax, tax gross-up, jock taxes

Suggested Citation

Veliotis, Stan, Salary Equalization for Baseball Free Agents Confronting Different State Tax Regimes (September 26, 2012). Journal of Sport Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2239894

Stanley Veliotis (Contact Author)

Fordham University - School of Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

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