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Team owner Stuart Sternberg wants the team to play part of the season in Florida, before – temporarily – moving their home-base across the northern U.S. border for the other part.
“It’s a little unprecedented … that a team would actually split the season,” Murray Solomon, a partner at EisnerAmpner – who counts athletes as clients – told FOX Business.
The potential move will raise team members’ tax bills, since the franchise will likely have a permanent establishment in Canada – or a taxable presence outside of an organization’s state of residence.
“It would be a big cost and they wouldn’t get a full-on tax credit,” Solomon said.
U.S.-based players (who are also U.S. residents) pay federal taxes – where the top rate is 37 percent – in addition to state and local taxes, which are much higher for some players than others. A handful of teams are located in states like Florida, Texas and Washington, which charge no income tax.
Even athletes who live in states without income taxes, however, are subject to taxes in other states where they play and earn income. Those "jock taxes" are usually calculated by dividing the number of work days spent (practices and games) in the city by the total number of work days.
But players based in Canada – who are often U.S. residents – face different tax liabilities. Most athletes will be subject to the maximum rate of about 53.53 percent (combined federal and provincial) on income earned while playing there. As U.S. residents, they will also be taxed by the IRS on all income, where the top federal rate is 37 percent. They also may owe state taxes based on where they are a resident (not in Florida, however), and jock taxes for income earned in different cities.
Players do receive a credit for the taxes they pay in Canada, however it is not a full credit since Canadian rates are higher, Robert Raiola, director of the sports and entertainment group at PKF O'Connor Davies, told FOX Business.
Allan Jubenville, an expert in cross-border taxation at Kraft Berger LLP, told FOX Business player taxes would largely rely on the way the team decides to operate in Montreal. But, he said, it is likely they would rent a stadium for the 40 games played there – which would mean the team and its players would be taxable on the share of profits earned there. A way around this, Jubenville noted, would be for the Rays to somehow operate in Canada without operating at a location under its control.
One possible bright spot is that signing bonuses – which are popular in baseball – are taxed at a lower, 15 percent rate. This offers teams the opportunity to lure new players in with the promise of allocating as much of their earnings as possible into a bonus.
Current players, however, have existing contracts structured without knowledge of the potential split-season.
The Rays’ current stadium – Tropicana Field – is located in St. Petersburg, Florida. The proposed split wouldn’t occur until about 2024. Despite their successful record, the franchise has been unable to draw large crowds in St. Petersburg. Sternberg has been trying to procure funding for a new stadium in the Tampa Bay area, but has been unsuccessful.
The MLB has given the team permission to explore the plan, according to ESPN.
The Montreal Expos were the first MLB team located outside of the U.S., but they moved to D.C. in the mid-2000s and became the Nationals.