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Is it really that small when you factor in that only half his contract would be earned in LA though, since players pay taxes on where the individual games are played?
The $30 million figure is misleading when you look at California income tax vs. no state income tax in Texas. IIRC it's closer to a $9-$10 million difference so with the additional extra year Dwight really isn't losing that much money going to Houston.
Is it really that small when you factor in that only half his contract would be earned in LA though, since players pay taxes on where the individual games are played?
Nice try. But he throw 30 mil away so he could run from the bright lights. - Kobe fan
15 million in Taxes over 5 years in L.A. vs. 600,000 in 4 years in Texas.
That sounds more accurate than the other figure I heard. He didn't really give up that much money all things considered.
Are you sure that's true? It doesn't sound right at all.
Nah, I'm not sure. Don't remember where I saw that taxes are collected where each game is played.
As you may have learned from Phil Mickelson, California currently offers the most oppressive state tax regime in the country, with a maximum rate of 13.3%. Texas, to the contrary, has no state income tax, meaning the $30 million difference in potential earnings suddenly becomes a bit smaller.
If Howard re-signs with the Lakers and relocates to California, as a resident of the state he will be subject to a 13.3% on all of his income. Any income allocated outside the state and taxed in another jurisdiction– for example, when the Lakers play the Phoenix Suns – will generate a credit Howard can use against his California income tax. But because California’s rate will always be higher than the other state, Howard will still pay an effective rate of 13.3% on his income.
To illustrate, if Howard had $10,000 of income allocated to a state with a 5% tax rate, California – as Howard’s state of domicile — will tax the income at 13.3%, or $1,330. The other state will tax the income at 5%, or $500. Finally, on his California return, Howard will get a $500 credit for the tax he paid to the other state, reducing his California tax to $830, but his total tax will still remain $1,330 ($500 to other state + $830 to California).
Thus, if Howard earns $118 million over the five-year life of a new deal with the Lakers, he will pay approximately $15,700,000 in state income tax over that span. And while those taxes are deductible on Howard’s federal return, the revival of the PEASE limitation on a wealthy taxpayer’s overall itemized deductions renders the tax benefit negligible for someone at Howard’s annual income level.
But what happens if Howard takes his talents to Texas? As a resident of a state with no income tax, Howard’s earnings would only be taxed to the extent he has duty days allocated outside of Texas. Sweetening the deal further, as a member of the Southwest Division, the Rockets play two road games apiece against the San Antonio Spurs and Dallas Mavericks. And if you’re one of the 6% of public school graduates who understand basic geography, you’ll recognize that those teams are also located in Texas, and so that income also escapes tax. In addition, the Rockets will play one road game each year against the Miami Heat and Orlando Magic, who are located in Florida, which also does not have an income tax. And lastly, they will play two road games each year against the Memphis Grizzlies, where a $2,500 per game “privilege tax” on athletes maxes out at $7,500 annually. Thus, in total, the salary earned from 49 of Howard’s 82 game days would largely go untaxed at the state level
For the sake of argument, let’s assume that the NBA season comprises 270 duty days, from the beginning of training camp until the playoffs mercifully conclude in late June. Let’s further assume that the average state income tax rate in those states the Rockets compete in outside of Texas is 5%.
We’ve already determined that Howard will play 49 games in states with no income tax, meaning he will play 33 games in states with a tax. If we assume another 33 of travel days allocated to taxable states –purely a shot-in-the-dark estimate — and 5 playoff games located in taxable jurisdictions, we get a total allocation of duty days of 71/270, meaning 26.2% of Howard’s total earnings of $87.6 million over the life of his contract – or $23.0 million — will be subject to state income tax. At an average rate of 5%, Howard will pay approximately $1,400,000 of state income tax over the four year period.
This means that by signing with the Houston Rockets, Howard could save approximately $14.3 million ($15,700,000 less $1,400,000) in state income taxes on his next contract. While that doesn’t make up the full $30,000,000 gross difference, it certainly eases the pain, and may be enough to convince Howard to flee for what he perceives to be a better basketball situation.
The Lakers, by virtue of being able to give annual raises in excess of what Houston can offer, would still offer a larger gross payday: $91 million versus $87.6 million for Houston. But with the difference now reduced to $3 million, the state tax impact becomes magnified. Howard would pay nearly $12 million in California tax over the four years if he signs with the Lakers, but only $1,400,000 in state tax should he sign with Houston. This means that a four-year deal with Houston would actually yield an additional $7 million in after-tax income.
http://www.forbes.com/sites/anthonyn...for-houston/2/
poor Phil
Good article tbh
Ugh. Makes me sick. If he still lived in Cali, he would have had to travel to Philadelphia, back to SoCal, then back to Philly before the US Open on a Gulf Stream 3 instead of a Gulf Stream 4. Could you imagine????
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