When free agent basketball star LeBron James announced that he was leaving the Cleveland
Cavaliers to join the Miami Heat, the subject of state income taxes became a
hot topic of discussion on blogs and in publications dealing with sports,
politics and finance.
A July 10 editorial
in the Wall Street Journal put it
this way: "We come not to praise or bury LeBron
James, but only to note that by moving to Miami he's going to save a bundle on
taxes. ... Florida has no income tax. The rate in Akron, Ohio is a little over
7 percent. Mr. James figures to earn close to $100 million in salary over five
seasons in Miami. According to an analysis by Richard Vedder,
an economist at Ohio University, Mr. James's net present value tax savings on
his salary are between $6 million and $8 million by living in Miami versus his
home town of Akron. Professional athletes do have to pay other state taxes for
the dates they play in visiting team arenas, but most of Mr. James's
considerable endorsement income would be taxed at Florida rates."
The editorial
states, "Even Ohio's famously liberal Senator, the late Howard Metzenbaum, moved to Florida late in his life to reduce his
estate taxes."
The New York Knicks and
New Jersey Nets (both in states with an 8.97 percent top income tax rate) also
were vying for Mr. James's talents, and the Los Angeles Clippers also threw
their hat in the ring (handicapped both by their reputation for losing and by
California's 9.55 percent top rate, plus 1 percent on taxable income over $1
million).
In other recent
activity, free agent Chris Bosh, formerly of the Toronto Raptors, also signed
with Miami, and free agent Dwyane Wade decided to
stay with the Heat.
"Who says the
rich don't consider tax rates?" asked Joel Fox, president of the Small
Business Action Committee, on his Fox
& Hounds Daily blog July 9. "Not Florida residents Tiger Woods,
the tennis playing Williams sisters or their new neighbors on the basketball
court."
Radio talk show host
Rush Limbaugh, who also lives in Florida (and has a condo in New York),
predicted at the beginning of July that Mr. James would sign with Miami, based
on an analysis of state income taxes.
John Seiler, in a
July 13 column for CalWatchDog.com,
quotes Cal-Tax Vice President of Communications and Research David Kline:
"California's high tax rates are a major factor in many financial
decisions, from those made by big-time sports stars to those made by retirees,
people just beginning their careers and middle-class families who are
considering starting a new business."
In other news
involving sports and the tax man:
Timing of Steinbrenner's Death Saves Heirs
Millions in Taxes. George
Steinbrenner's death on July 13, at the age of 80, was of interest to tax
experts as well as sports enthusiasts. Because the billionaire owner of the New
York Yankees died in 2010, his heirs will not be subject to the federal estate
tax, which is not in effect this year but was in 2009, and likely will be again
in 2011.
The Associated Press explains that his death "came during an
unplanned year-long gap in the estate tax, the first since it was enacted in
1916." The estate tax is scheduled to return in 2011, with a top rate of
55 percent. The House passed a bill last year that would have extended the
estate tax at the 2009 rates, but it stalled in the Senate. Many Republicans
want to eliminate the federal estate tax altogether, while many Democrats want
to extend it at the 2009 rates.
"If you're
super-wealthy, it's a good year to die," said Jack Nuckolls, an attorney
and estate planner with the accounting firm BDO Seidman.
"It really is."
Under the old law,
those with estates valued at more than $3.5 million had to pay the estate tax.
Without knowing the exact details of Steinbrenner's holdings and estate plan,
it's impossible to say how much money would have been paid in taxes had he died
when the estate tax was in effect.
The AP reported: "Forbes magazine has
estimated Steinbrenner's estate at $1.1 billion. The federal estate tax in 2009
was 45 percent, with the $3.5 million per-person exemption. If he had died last
year, his estate could thus have faced federal taxes of almost $500 million,
depending on how the estate was structured."
That doesn't mean
his heirs permanently escape all taxes related to his assets. They will still
have to ultimately pay a capital gains tax if and when assets are sold. And due
to a change in tax law this year, the tax would be applied to the amount by
which the assets have appreciated since Mr. Steinbrenner acquired them.
The Steinbrenners are expected to avoid what happened to the
family of Chicago Cubs owner P.K. Wrigley after he died in 1977. The family was
forced to sell the Cubs to the Tribune Company four years later to pay the
taxes on Mr. Wrigley's estate.
There had been talk
on Capitol Hill of reinstating the tax retroactively, to the start of this
year, but as the year progresses, lawmakers say that is increasingly unlikely.
(Source: The Associated Press, July
14.)
Cal-TaxReports, July 19, 2010
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