Will Shohei Ohtani’s Contract Prompt Congressional Intervention?
Among the winners of the Shohei Ohtani free-agent saga: the state of California, which stood to recoup an estimated $98 million in taxes based on the $700 million value of his contract.
By deferring $68 million in salary each year, however, Ohtani’s contract raises the possibility that he can avoid paying the bulk of his state taxes by residing outside of California once his 10-year contract with the Los Angeles Dodgers expires. The contract runs through the 2033 season, when Ohtani will turn 39.
Starting July 1, 2034, Ohtani will receive $68 million a year without interest until 2043. The question of whether Ohtani will owe California taxes from 2034-43 has been a point of fascination since his unique deferred-salary arrangement was reported.
Now, the answer is more clear: maybe not.
Monday, state controller Malia Cohen released a statement calling on the U.S. Congress to close any loopholes that would allow Ohtani to avoid paying his full share of state taxes on his new contract. From Front Office Sports:
“The current tax system allows for unlimited deferrals for those fortunate enough to be in the highest tax brackets, creating a significant imbalance in the tax structure. The absence of reasonable caps on deferral for the wealthiest individuals exacerbates income inequality and hinders the fair distribution of taxes.”
California state controller Malia Cohen
Players who live out of state while under contract to a Major League Baseball teams have, in the past, been subject to income tax rates in their state of residence rather than the state the team calls home.
Retired players such as Ken Griffey Jr. and Bobby Bonilla have been able to save money on the deferred portion of their contracts because Florida, their home state, does not levy an income tax. Could Ohtani save $98 million by moving out of state?
Journalist Darren Rovell asked the Franchise Tax Board in December. Their answer:
While that answer is not straightforward, Cohen’s plea to Congress suggests there’s a loophole to be found if Ohtani goes looking for it.
“Introducing limits on deductions and exemptions for high-income earners promotes social responsibility and contributes to a tax system that is just and beneficial for all. This action would not only create a more equitable tax system, but also generate additional revenue that can be directed towards addressing pressing important social issues and fostering economic stability.”
California state controller Malia Cohen
Photo Credit: Kirby Lee-USA TODAY Sports
So while sitting at LAX I open my laptop and buy a Call or Put LEAP in my stock portfolio that makes money in the future, now California is going to want the taxes on it instead of the state I live in? They think the other 49 states are going to agree to that? What a tracking nightmare, besides filing multiple taxes in multiple states for an average person.
What if the order is processed on Wall Street? Now I have to include NY State Taxes even if I live in a zero state tax home?
California Government has gone completely off their arrogant rockers.
There is more, but all of us can see where this is going. Ballplayer X decides to move back to Florida or gets traded at the end and stays in Florida. Florida says thats’okay California, here you take the taxes. Sure.
If they do it to Ohtani, you need to realize that when laws are written they cannot specify an individual, it has to be generic.
If Congress opens the door to do it to Ohtani, they opened the door and can do it to each and every one of us. Be prepared to have tax accountants and file in every state.
Tell your congress reps to laugh at California Lobbiest when they hear the request.
Yeah, and Ca. state controller crying because they’re $68 billion in the red and they’re afraid they won’t get Ohtani’s money. That’s the real issue here! They want your money! It’s theirs, not yours. You didn’t earn it. They need your/our money so they can keep spending ridiculously, giving it away for votes to stay in office/power! Instead of being responsible, respective, fair and honest politicians serving their constituents!