You could say Major League Baseball pitcher Merrill Kelly threw the San Diego Padres a curveball during free agency this winter when Herr turned down the team’s three-year offer and returned to his former team, the Arizona Diamondbacks.
As it turns out, Kelly weighed the decision to sign on the income tax side of each team’s home state.
“I don’t think it’s any secret how much money you take out of your pocket when you go to California,” Kelly Fowle told Territory (1). “The tax is different there. We ran the numbers with my numbers guys and it felt a lot like coming home.”
These “numbers” aren’t just the $40 million Kelly will make over the next two years (2). It’s also California’s 13.3% “millionaire’s tax” rate (3), compared to Arizona’s flat income tax rate of 2.5% (4).
Some quick math shows the difference: Arizona taxes on $40 million come to about $500,000 per season. Compare that to California’s rate, which would take the tax man about $2.7 million a season.
And Kelly’s situation is not uncommon in sports, where state income taxes can tip the scales for athletes deciding where to play next.
Over the years, many pro athletes have admitted that state taxes have influenced which cities they decide to play in.
In 2022, for example (5), NFL wide receiver Tyreke Hill noted that when the Kansas City Chiefs traded him that year, he traded to the Miami Dolphins instead of the New York Jets because “this state tax man. I had to make a big decision.”
Jet actually plays in New Jersey, where the top tax rate is nearly 11% for income over $1 million (6). Meanwhile, Florida has no income tax.
A year later, NBA forward Grant Williams signed with the Dallas Mavericks for $54 million after playing four seasons with the Boston Celtics. As with Hill, Williams pointed to higher taxes in Massachusetts – a 9% rate for those making more than a million dollars (8), compared to Texas which, like Florida, does not charge a state income tax.
“In Boston, it’s actually like $48 million with the millionaire’s tax,” Williams shared with Boston.com (7). “So $54 million in Dallas is really $58 million in Boston and $63 million in L.A.”
Meanwhile, last year The Canadian Press investigated whether the six NHL teams that play in states with no income tax have an advantage over other teams in “attracting and retaining players,” NHL assistant commissioner Bill Daley acknowledged that some teams in the league raised income tax as a concern.
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And the issue goes beyond pro athletes. Although both states impose an income tax on residents, Arkansas and Mississippi passed legislation to eliminate name, image, and likeness (NIL) income for college athletes—allowing their school’s athletic programs to compete in the states without income taxes (10). Mississippi is also in the process of completely eliminating its state income tax.
That said, the strategy of relocating your career to states with low, or no, income taxes may not work for some professional athletes, but there’s more to consider for regular folks looking to relocate and save in the process.
If you’re weighing your out-of-state career opportunities, the best advice is to consider more than what you’ll pay in state income tax each year. That’s because millions of professional athletes are well equipped to absorb additional expenses in low or no income tax states.
“In some cases, you could end up paying more in total state and local taxes because of sky-high property or sales taxes,” warns TurboTax attorney and analyst Rocky Mingle (6). “Furthermore, the cost of living may be very high, which can wipe out the tax savings from the lack of income tax.”
For example, TurboTax noted that while Louisiana and Arkansas both rank among the lowest state income tax rates in the country, they also rank first and fourth, respectively, on the list of highest combined state and local sales taxes.
Housing costs and related expenses can also offset income tax savings. For example, Optima Tax Relief points to Florida — often a destination for snowbirds, warm-weather workers and retirees. However, thanks to the threat of disasters from floods to hurricanes (11), Optima reports that home insurance “has premiums in excess of $10,000 in some counties—nearly five times the national average.”
As such, Optima adds, higher home insurance premiums in Florida — along with other costs — “could cancel out the expected savings from not paying state income taxes.”
California, on the other hand, may have the highest state income tax (12th) in the country, but Fidelity notes that “it also ranks in the top 15 states for married filers at the same income level.”
All of which suggests that if you’re making millions a year to toss a ball or shoot a puck, it might make sense to play in cities with lower state income tax rates. But for everyone else, there are many other financial factors to consider before packing up the car and moving across state lines.
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Foul Area – X (1); MLB.com (2); KDA (3); Tax Foundation (4); New York Post (5); TurboTax (6); Boston.com (7); Lick (8); TSN (9); Clarion Ledger (10); preferential tax exemption (11); Loyalty (12).
This article provides information only and should not be used as advice. It is provided without warranty of any kind.
