ADVERTISEMENT

A Curveball From the New Tax Law: It Makes Baseball Trades Harder

cigaretteman

HR King
May 29, 2001
77,133
58,316
113
More fallout from this cobbled together monstrosity of a bill:

As President Trump congratulated the Houston Astros for winning the World Series at a White House ceremony last week, he also heaped praise on himself and congressional Republicans for passing a sweeping tax cut last year. He hailed Representative Kevin Brady of Texas, the House’s chief tax writer and an Astros superfan, as “the king of those tax cuts.”

What he did not mention is that the new tax law Mr. Brady helped draft, and which Mr. Trump signed, levies a large new tax on the Astros, and similar franchises across professional sports.

The law changed a corner of the tax code that mostly applies to farmers, manufacturers and other businesses that until recently could swap certain assets like trucks and machinery tax-free. But by adding a single word to the newly written tax code — “real” — the law now only allows real estate swaps to qualify for that special treatment.

That change is meant to capture more federal revenue, in order to partially offset reductions in business and personal income tax rates. It forces manufacturers, farmers and others to pay more in capital gains taxes, if they trade an asset for something more valuable. The Joint Committee on Taxation estimates the change will raise $31 billion over the next decade.

It also means that the Astros and other sports franchises could now face capital gains taxes every time they exchange or trade their highly paid players.

The provision is raising concerns and questions across Major League Baseball and the National Basketball Association, starting with: How do you value a player?

“There is no fair-market value of a baseball player. There isn’t,” said Daniel R. Halem, the chief legal officer of Major League Baseball. “I don’t really know what our clubs are going to do to address the issue. We haven’t fully figured it out yet. This is a change we hope was inadvertent, and we’re going to lobby hard to get it corrected.”

The N.B.A. is similarly perplexed. It sent teams an email earlier this month detailing the disruption of the trading system under the new law, but told executives it was still figuring out how to respond.

The confusion is only one of many side effects of the new tax law, which sped through the House and Senate in less than two months at the end of last year, resulting in a series of changes that were both intentional and inadvertent. Republicans say they weren’t trying to hamstring sports teams: The change in the like-kind provision, Senate staff members said, was simply an attempt to broaden the United States tax base.

But that is little consolation to the teams who now join restaurateurs, independent agriculture businesses and multinational corporations on a long list of entities affected by the law in ways they did not see coming, and who now face long odds to secure changes or clarifications.

Major League Baseball and N.B.A. officials expressed hope that Congress would revisit the provision, which is one of many parts of the law that could raise their taxes or hurt their revenues.

It is unclear how aggressively the Internal Revenue Service would enforce the provision with sports teams. Mr. Halem, of Major League Baseball, said the league was asking the Treasury Department for guidance on how to come up with valuations for tax purposes. If such a system was the intended result of the law, he said, “then write some regulations, tell us what you mean.”

I.R.S. officials declined to comment on whether the agency would issue future rulings on the tax treatment of sports trades. Treasury officials did not respond to a request for comment on Friday.

Like many franchises, the Astros have aggressively worked the baseball trade market to improve their roster. Last year, on their way to their first World Series championship, they engineered a last-minute deal ahead of the league’s trade deadline to acquire Justin Verlander, a veteran starting pitcher midway through a 6-year, $162 million contract, from the Detroit Tigers in exchange for three up-and-coming young players. Last month, the Astros acquired the veteran pitcher Gerrit Cole from the Pittsburgh Pirates in a similar trade.

For decades, teams have not paid taxes on such trades, and thus have not had to account for the value of the assets they are exchanging, for tax purposes. A 1967 ruling from the Internal Revenue Service allowed baseball owners to depreciate the cost of player contracts over several years, thus reducing the team’s taxable income. It declared that “trades of player contracts owned by major league baseball clubs will be considered exchanges of like-kind property” under a section of the tax code.

That distinction was crucial. Until this year, the “like-kind” provision allowed owners of similar types of property, such as machinery or fleet vehicles, to swap their assets without paying taxes on either party’s gains until the asset was sold. In a baseball or basketball trade, the assets aren’t players, they are the players’ contracts — and the I.R.S. was allowing them to be exchanged without fear of taxation.


The new law breaks that peace, by limiting like-kind exchanges to “real property,” which is shorthand for land or other real estate.

“I don’t think that they thought about baseball when they thought about this change,” said Kari Smoker, an accounting professor at SUNY Brockport who has consulted for the N.B.A. and National Hockey League players’ associations in legislative disputes over sports taxation. “It raises all kinds of issues, which I think were easier to ignore, probably, when we had a simple rule that it was a like-kind exchange.”

Mr. Verlander, for example, was clearly a more immediately valuable asset to the Astros than the three prospects they traded to get him. He gave up only four runs in his five regular-season starts for the team, then won four straight starts to begin the playoffs. In very simple terms, he brought value to the Astros in a trade, and had the new law been in place last year, the team would have owed taxes on that added value.

But what, exactly, was that value? Was it the size of his contract? Mr. Verlander earned $28 million last year, while the players traded for him drew minor-league salaries. Was it the additional wins he brought to the team? Statisticians estimate Mr. Verlander gave the Astros nearly two more wins last season, a value that, depending on the statistician, could reach $20 million. Or was some calculation of the total future value Mr. Verlander will bring to the team, minus the total future value it gave up in the prospects it traded away — and possibly adjusted for the amount the team will have to pay Mr. Verlander?

Complicating matters further is that teams value players differently, and one player might help a certain team far more than another team. A struggling club with a surplus of starting pitchers might trade one to a playoff contender in desperate need of one, in exchange for position players who could improve a struggling lineup. In that case, both teams could, reasonably, be considered to have gained value in the trade, and thus would owe taxes on it.

That is exactly how Adam Guttridge views the trade of Mr. Verlander — as a win-win for both the Astros and Tigers, which would have resulted in a capital-gains tax bill for each of them. Mr. Guttridge is a former manager of baseball research and development for the Milwaukee Brewers and the co-founder of NEIFI, a consultancy that has developed software to attach a dollar value to every professional ballplayer and his expected future performance.

How to calculate such value for tax purposes “is the question that somebody has to answer, that nobody in the baseball space has,” Mr. Guttridge said. “There’s certainly no consensus among the 30 teams.”



https://www.nytimes.com/2018/03/19/...column-region&region=top-news&WT.nav=top-news
 
If it nails the Cub$ I'm all for it. :):D:):p
Are ball players assets, employees or subcontractors? Could have different lawyers arguing all three. Do you depreciate a pitcher? You know all these players pay state taxes in the various states the games are played. States without income taxes are more lucrative than say a high tax state.

The 10 highest income tax states on the FTA's 2016 list were:
  • California 13.3%
  • Oregon 9.9%
  • Minnesota 9.85%
  • Iowa 8.98%
  • New Jersey 8.97%
  • Vermont 8.95%
  • District of Columbia 8.95%
  • New York 8.82%
 
Anyone else completely not shocked in the slightest bit that the one thing left out of this was real estate swaps? Hmm...I can't imagine any reason at all that would have been left off the list.
 
With all the things in the tax law, the effect it has on professional sports trades is pretty meaningless to me.

I tend to agree, but it's yet another example of why this bill was all full of things that weren't thought all the way through.
 
Not an outrage, just another of the myriad of examples of just how poorly thought out in incompetently put together this awful tax law was and is.
Is it more poorly thought out than the ACA where all the insurers have left the state but one? Or the cash for clunkers or the 7500 dollar tax credit that paid for every rich retiree in Arizona to get a new custom electric golf cart?

3971.jpg


Yep, all 2,800 pages of the ACA were carefully thought out......:rolleyes:
 
Not an outrage, just another of the myriad of examples of just how poorly thought out in incompetently put together this awful tax law was and is.
Is it more poorly thought out than the ACA where all the insurers have left the state but one? Or the cash for clunkers or the 7500 dollar tax credit that paid for every rich retiree in Arizona to get a new custom electric golf cart?

3971.jpg


Yep, all 2,800 pages of the ACA were carefully thought out......:rolleyes:

How DARE you talk badly about the ACA. It is perfect right along with the group that created it.
 
Is it more poorly thought out than the ACA where all the insurers have left the state but one? Or the cash for clunkers or the 7500 dollar tax credit that paid for every rich retiree in Arizona to get a new custom electric golf cart?

3971.jpg


Yep, all 2,800 pages of the ACA were carefully thought out......:rolleyes:

So, it's ok to pass crappy legislation because the other side did it too?
 
It is unclear how aggressively the Internal Revenue Service would enforce the provision with sports teams. Mr. Halem, of Major League Baseball, said the league was asking the Treasury Department for guidance on how to come up with valuations for tax purposes. If such a system was the intended result of the law, he said, “then write some regulations, tell us what you mean.”
REGULATIONS?!?!?! No f'n way!!!
 
  • Like
Reactions: cigaretteman
You don't think the IRS writes regulations inside the tax laws? Click on the IRS and tell me how many pdfs you can link to regarding tax regulation. Talk to you next week after the Tarheel game.....;) this is going to take a while.
 
Last edited:
I don’t follow any of this...

The idea of baseball trades resulting in meaningful capital gains for both sides makes no sense to me
 
If it nails the Cub$ I'm all for it. :):D:):p
Are ball players assets, employees or subcontractors? Could have different lawyers arguing all three. Do you depreciate a pitcher? You know all these players pay state taxes in the various states the games are played. States without income taxes are more lucrative than say a high tax state.

The 10 highest income tax states on the FTA's 2016 list were:
  • California 13.3%
  • Oregon 9.9%
  • Minnesota 9.85%
  • Iowa 8.98%
  • New Jersey 8.97%
  • Vermont 8.95%
  • District of Columbia 8.95%
  • New York 8.82%
I’m worried about restricting Latin players from coming in. Trump is dumb enough to f*** with that.
 
  • Like
Reactions: cigaretteman
It was thought through. The poor loses out and the rich and corporations pay less taxes. That is all the thinking the right needs.
How about the folks that have to buy uniforms who. Ow can’t write off some of the expense? This bill was jammed through with lots of mistakes. Considering parts of it were hand written in the margins, and nobody but he Koch brothers lawyers had read it there is no surprise it’s riddled with flaws.
 
  • Like
Reactions: cigaretteman
How about the folks that have to buy uniforms who. Ow can’t write off some of the expense? This bill was jammed through with lots of mistakes. Considering parts of it were hand written in the margins, and nobody but he Koch brothers lawyers had read it there is no surprise it’s riddled with flaws.

Think the rich have to buy uniforms?

The poor lose out and the wealthy and corporations win out. That's all the right needs to know. The details don't matter to them.
 
  • Like
Reactions: cigaretteman
They thought through the big stuff. We're going to find countless areas like this where they didn't think through the details. We've already seen several.

You think any of those details are going to hurt a significant number of wealthy people?

Shoot its not even really settled that this is going to affect professional sports trades, only that it "could".
 
You think any of those details are going to hurt a significant number of wealthy people?

Shoot its not even really settled that this is going to affect professional sports trades, only that it "could".

I don't get your point. Where did I say this bill will hurt the wealthy? I've just been pointing out that there are and will continue to be a lot of unintended consequences due to poor planning and shoving this through.
 
I don't get your point. Where did I say this bill will hurt the wealthy? I've just been pointing out that there are and will continue to be a lot of unintended consequences due to poor planning and shoving this through.

The consequences are not unintended if you don't care about them is my point.

The only intention was a giveaway to the wealthy and corporations. Anything else doesn't matter.

If you can show me where the tax bill will hurt a significant number of the wealthy or corporations then I will say that was an unintended consequence.

Outside of that is like saying that civilian casualties are an unintended consequence of carpet bombing. That's not the case because when you carpet bomb you at the very least don't care about civilian casualties and therefore the consequence is not unintended.

These little details about uniforms that you have to buy yourself no longer being tax deductible they are not unintended consequences because they where a consequence the right never worried about in the first place.
 
ADVERTISEMENT