Income Tax Considerations and Tax Planning Opportunities For Professional Athletes

The New York City Economic Development Corporation estimates the 2013 MLB All-Star Game will generate $191.5 million.
New York will receive increased tax revenues from ticket sales, shopping, hotels, and entertainment.
New York will also be collecting income tax from MLB All-Star players.
They will be subject to New York State income tax as they are performing services in the state based on the number of allocable all-star duty days.
A professional athlete with duty days in multiple state jurisdictions (and foreign countries) should plan so they can minimize tax liabilities and take advantage of available state income tax credits.

For more information on income tax considerations and tax planning opportunities for professional athletes, contact our Personal Wealth Advisors group.

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New York State Poised for a Home Run in Collecting a Sizeable Share of Income Tax from Nonresident MLB Players in the 2013 All-Star Game

Contact: Evan Waxman
Contact: Timothy Speiss

July 11, 2013

By Evan R. Waxman, CPA, MST, PFS 

Evan Waxman

On July 16, 2013, the 84th Annual Major League Baseball (“MLB”) All-Star Game will be hosted at Citi Field in in Flushing, New York.  The festivities will kick-off on July 12 at the Javits Center, with the athletes expected to arrive Monday morning, July 15 to prepare for the Annual Home Run Derby and other promotional events.

Including these game-related events, the infusion of revenue will boost many sectors of the New York economy. The estimated economic impact of the 2012 game held in Kansas City, Missouri was approximately $67 million and the 2008 game at Yankee Stadium hosted by New York City yielded close to $150 million; the economic impact estimates for the host cities for the ten All-Star Game events prior to 2012 (2002-2011) averaged $70.5 million, according to MLB statistics. The New York City Economic Development Corporation estimates that the 2013 All-Star Game at Citi Field will generate $191.5 million in total economic impact, with an estimated 176,000 people traveling to the City.

New York State and City may be the ultimate All-Star game beneficiaries, receiving increased tax revenues from ticket sales, retail shopping, hotels, entertainment outlets and food and beverage providers – and with New York State collecting income tax from the All-Stars themselves.

Every MLB player who will be playing in the “Midsummer Classic” will be subject to New York State income tax as they are performing services in the state, either as a resident, or non-resident, based on the number of allocable all-star duty days.  The duty days are not only limited to active participation in the game, but are also based on days which include team meetings, promotional caravans and practice – for example, including participation in the Home Run Derby.  There is an out however: For all MLB players who have been selected as All-Stars but are unable to participate in the game and are not rendering services in any manner, if they attend the All Star game as solely spectators, they will not be required to include these days as duty days in New York.  However, such days will be considered to be included within total duty days for the entire 2013 season.

MLB players participating in the 2013 All-Star Game will be taxed by New York State based on a proportion of their total 2013 wages including their team salary and All-Star bonuses, self-employment income (from personal appearances, scheduled autograph signings and endorsements), and royalties earned from appearing as an All-Star.  Any other non-MLB income earned by players from New York sources (for example, rental activity and other business income in New York) will also be taxable. New York City does not impose a tax on nonresident athletes.

As an illustration of the tax cost of playing at the 2013 All-Star Game, consider Felix Hernandez, the starting pitcher from the Seattle Mariners, with a 2013 MLB salary of $20,557,000 before incentive bonuses.  Ignoring spring training and assuming the total 2013 duty days was comprised of the regular season (162 days) and the 2013 All-Star Game (2 days), the total 2013 duty days is 164.  The income sourced to New York State attributable to the 2013 All-Star appearance would be $250,695 (2/164 X $20,557,000) which is equivalent to a tax of $22,111 (based on the New York State upper tier tax rate of 8.82%). We chose to reference Felix Hernandez in this article to illustrate that although the Seattle Mariners are located in Washington State, a state which has no income tax, professional athletes rendering services in other jurisdictions including New York are subject to sizeable state income tax liabilities. Clearly it is necessary and prudent for a professional athlete with duty days in multiple state jurisdictions (and foreign countries) to undertake proper planning to minimize tax liabilities, and to take advantage of available state income tax credits as available.

This article represents one in a series,  How Much Does it Cost To Be a Toronto Blue Jay? Income Tax Considerations and Lin-come Tax: State and Local Income Tax Considerations, that EisnerAmper LLP releases, addressing income tax considerations and planning opportunities related to professional athletes, models and entertainers. Professionals from EisnerAmper LLP’s Sports, Media and Entertainment Practice also contribute to these articles.

Edited by Timothy P. Speiss, CPA, MST, PFS of EisnerAmper LLP and chairman of the firm’s Personal Wealth Advisors Practice.  The information contained in this article should not be relied upon as, nor intends to provide, legal, investment, tax, or economic advice unless specifically stated herein. 

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