Dodgers $900,998 Million Contract Trade Has finally Being In Place…

Shohei Ohtani’s record-breaking deal with the Los Angeles Dodgers may come with an added bonus: he will not have to pay the majority of California’s infamously high income taxes. As if $700 million wasn’t enough.

Ohtani’s tax obligations cannot be avoided, not even by the formidable Dodgers. However, they and the player have the power to decide when Ohtani gets paid. Over the course of the next ten years, the Dodgers will pay Ohtani $20 million. During that time, the baseball star will be pitching and, if health permits, hitting for the National League’s top team.

The Dodgers will actually begin to pay Ohtani in the ensuing ten years, starting in 2034 and going up to $68 million annually in 2043. In 2034, Ohtani will turn forty years old, past the retirement age for most Major League Baseball players. At that point, Ohtani might decide to give up baseball and move out of California, possibly saving the majority of his income from the state’s 13.3% income tax and 1.1% payroll tax for State Disability Insurance.

With 97% of Ohtani’s Dodgers income deferred, it means California — where there is an estimated $68 billion budget deficit this year — will have to wait at least a decade before it can collect taxes on the bulk of his salary, if it can collect at all. California could collect taxes from Ohtani’s significant endorsement deals, assuming Ohtani is a California resident.

It’s impossible to know for sure how much state taxes Ohtani will pay. California law doesn’t let state officials provide information about a single taxpayer. The California Franchise Tax Board — the state agency that collects income taxes — says the amount of income subject to tax payments and the timing of those payments vary depending on the technical details of the contract, which are not publicly available.

But the details of Ohtani’s contract that are publicly known appear to fit nicely within the confines of a federal law that specifically bans states from taxing the retirement incomes of former residents, said Kirk Stark, a law professor at UCLA who specializes in tax law and co-authored a textbook on state and local taxes.

That law, Stark says, applies to deferred compensation arrangements as long as the income is received in substantially equal payments over a period of not less than 10 years. That scenario seems to apply to Ohtani’s contract, meaning he could potentially avoid paying California income taxes were he to live outside of the state once his playing career ends.

“Are they, in fact, doing that? I have no idea. It would require a sort of more granular evaluation of the actual contractual language,” Stark said. “Probably even Ohtani doesn’t even know for sure, other than the lawyers or whoever else was involved in drafting the contract.”

During Thursday’s introductory news conference at Dodger Stadium, Ohtani said he structured the contract to help the Dodgers, not himself. He wants the Dodgers to be free to spend more money on other good players.

Professional athletes’ taxes are also much more complicated than the average taxpayer. In the U.S., people must pay taxes based both on where they live and where they work. That means when the New York Mets play the Dodgers in Los Angeles, Mets players can be taxed for the days they played in California.

Most states have a formula for how to calculate this, known as “jock tax,” according to Jared Walczak, vice president of state projects for the Tax Foundation. It doesn’t apply to states that have no income tax, like Texas, Tennessee and Florida, where many professional athletes move.

Ohtani’s deal serves as a stark reminder of the disproportionate influence California’s affluent citizens have over the state’s budget. Just 8,500 of the more than 39 million residents of the state make up 25% of the state’s annual income tax revenue. Because of this, state budget officials keep a close eye on the number of businesses that choose to sell their stock to the general public each year, a process that adds millionaires to the state’s population.

“Mr. Ohtani already has and will continue to put up otherworldly numbers on the field, however it is fair to say it will take much more than his remarkable success to close next year’s budget gap,” said H.D. Palmer, spokesman for California’s Department of Finance, said of the state’s estimated multibillion-dollar budget deficit.

The California Center for Jobs and the Economy estimated California could miss out on as much as $98 million in taxes from Ohtani — an estimate based on a lot of assumptions. Brooke Armor, the group’s president, said it would take 317 similar contracts to cover California’s budget deficit.

“That’s a very small number of people, and every time somebody leaves — a high income earner — the budget feels it,” she explained. “It just shows the volatility and fragility of the state’s revenue system.”

The California Budget and Policy Center’s executive director, Chris Hoene, stated that it is only justifiable for the wealthy to pay a higher tax burden than individuals with lower incomes.

“The whole point of California’s tax structure is to say those of you who are benefiting more and are therefore wealthier and have higher incomes should be paying more in taxes than someone who is making the minimum wage,” he stated.