Spring Training: Sunshine, Optimism and Tax Advantages
Written by: Brian Cooke, CPA, CA, Manager at Sone Rovet Chasson LLP
March 8, 2017
The long and trepid offseason is behind us as our Toronto Blue Jays are down in Florida preparing for yet another run at the World Series. Excitement builds as the sun shines down on a field of both familiar faces and new reinforcements. Eager fans await the regular season to see if this year’s team can break through and bring a championship home to the great city of Toronto. The players, however, are perfectly content down in Florida: they’re paying tax at the lowest rate they’ll pay all year.
Baseball players are considered to be employees of their teams. Just as many of us receive a salary throughout the year, they receive a slightly larger salary over the course of the regular season. However, for tax purposes, they are subject to what is often called the “jock tax”. In general, this means that they pay income tax wherever they perform team-related activities. This includes the regular season and spring training, as well as some media appearances and team functions. Therefore, their total salary is allocated amongst these activities throughout the entire year and taxed in each country and province or state accordingly. This can be become extremely complex due to factors such as citizenship, residency status and the Canada-U.S. tax treaty, but we’ll leave that to the brave accountants preparing their numerous tax returns.
Spring training comprises approximately 20% of a player’s team-related activities and that portion of their annual salary will be taxable in Florida. Florida has not enacted a state income tax and the top federal rate in the United States is approximately 14% lower than the top combined federal and Ontario rate. Therefore players on the Blue Jays will pay significantly less tax for income attributable to spring training than they will for income attributable to games played at the Rogers Centre.
The impact of spring training mitigates the effect of higher personal tax rates in Canada. Tax rates are often blamed for our difficulty attracting high profile free agents. Due to the manner in which athletes are taxed, this is overstated. At the end of the year, players on the Blue Jays will pay more income taxes than those who play their home games in states that do not impose an income tax, but the difference is far less than the 14% difference in the top marginal rates.
At the end of the day, winning cures all. If we can bring that championship home, I don’t think anyone will mind paying a few extra dollars in taxes.