Tuesday, December 14, 2010

Professor Edward Zelinsky on Tax Considerations and Cliff Lee's deal with the Phillies

Professor Edward Zelinsky, a distinguished tax law expert at Cardozo Law School, checks in with some thoughts on Cliff Lee's decision to sign with the Phillies for 5-year, guaranteed $120 million (instead of signing with the Yankees for 6-years, guaranteed $132 million, or the Rangers for 6-years, guaranteed $138 million -- both the Yankees and Rangers offered 7th year vesting options, too):

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Cliff Lee's decision to go to Philadelphia is interesting from a state and local tax perspective. It had appeared that Lee's choice was between the Yankees (in a state with some of the nation's highest state income tax rates) and the Rangers (in a state with no state income tax). Presumably, the Yankees' bid was designed to offset some or all of the tax disadvantages of playing in New York.

The Phillies confronted essentially the same tax competition with the Rangers as did the Yankees. Pennsylvania is a high tax state in which to live and work. The City of Philadelphia has been among the most aggressive municipalities taxing nonresident athletes for the days they play in Philadelphia.

The obvious lesson is that taxes aren't everything. The sublter lesson is that the Phillies likely paid more for Lee than they would have had they been located in a low tax state and think they will recoup in ticket sales or other revenue streams the extra amounts they pay Lee because of the Pennsylvania tax burden. Thus, in the final analysis, that burden likely falls on the fans.