Is Lefty's stance on California's tax hikes a sign of things to come for millionaire athletes?
The Golden State's new 13.3% income tax on top earners prompted golfer Phil Mickelson to say earlier this month he was considering a move,
and according to the accountants who advise millionaire athletes, he
was just saying what a lot of jocks were already thinking. Federal taxes
on the top income bracket just rose by roughly 5%, and, while there's
nothing rich athletes can do about that, they are paying attention to
which states dip into their game checks — and how much they take.
“They’re going to have an exodus of
people,” said John Karaffa, president of ProSport CPA, a Virginia-based
firm that represents nearly 300 professional athletes, primarily in
basketball and football. “I think they’ll see some [leave California]
for sure. They were already a very high tax state and it’s getting to a
point where folks have to make a business decision as well as a
lifestyle decision.”
The taxes of professional athletes
became incredibly complicated in the early 1990s, when aggressive state
and local tax collectors began targeting them to pay non-resident income
taxes. Technically, all employees who earn money for work done outside
their home states have to pay non-resident taxes, but enforcement has
focused on millionaire athletes with publicized work schedules to the
extent is is commonly called the "jock tax." Although ballplayers can't
get out of the state and local taxes they pay while on the road, where
they play their home games can make a huge difference. California takes
13.3% on income above $1 million, but states like Florida, Nevada and
Texas are among seven that take nothing.
It adds up, says Karaffa. As tax season
enters full bloom, he expects to see an uptick in the number of clients
who will consider leaving California. Under a hypothetical calculation,
the tax difference for a single professional athlete making roughly $10
million a year between being a resident of California versus Florida is
around $800,000 annually. ...
For top golfers and tennis players, who
make most of their money through endorsements not subject to the "jock
tax," the choice of where to live has a huge impact. Mickelson, of
Rancho Santa Fe, Calif., quickly apologized
for riling critics on Jan. 20 when he said an effective federal and
state tax rate of 60-plus percent seemed excessive. But he was likely
only saying what others were already thinking, especially after
California voters approved Proposition 30 last November. In addition to
raising the state sales tax, it imposed a menu of new tax brackets. Just
the increase of the top bracket to 13.3% from 10.3% cost Mickelson
roughly $1.8 million of his $60 million income for 2012.
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