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05/22/2012

Deron Williams, Josh Hamilton & the no Texas state tax income myth on free agency

6a01156f2c3287970c0168e4f77f88970c-500wiBrooklyn nets guard Deron Williams is not yet a free agent, and neither is Texas Rangers outfielder Josh Hamilton, but that is no excuse not to project where either player will land when the time comes.

We have this report from Slam online that says the Nets and their Russian guhzillionaire owner are ready to bury DWill in money. 

We have this from Sportsline.com's Jon Heyman listing a whole bunch of landing sports for Josh, No. 1 being Texas.

Those crossing their respective fingers extra tight in hopes that DWill comes home to the Mavs, and Josh stays, usually point to the fact that Texas has no state income tax as one of the many benefits of signing with their favorite local team.

My personal take on this truth is that never once has it affected a free agent signing with their team of choice. The man weighing a five-year, $125 million offer from New York looks at that figure as greater than the five year, $120 million deal from Texas, despite the tax impact it will have on the net sum.

I called a long time CPA in Texas in an effort to determine if the other taxes levied by Texas, most notably our higher property taxes, make the no state-income tax a wash on contracts.

200px-Josh_Hamilton-2432"It's complicated and it all depends on where you live," the CPA said. "Texas property taxes are very high. And Texas has a lot of little dinky (taxes). We also have a high sales tax. Now, if this player is in New York he's going to have to pay a high sales tax, a city tax, a state tax and a lot of other ones, too. He's just going to get taxed more there."

The CPA explained, as far as filing a tax return and trying to regain some of those lost wages, is a complicated labyrinth but possible.

I posed the following questions:

a.) Is a five-year, $100 million contract in Texas going to look the same in New York after taxes?

"No," the CPA said. "The player in New York is going to be taxed more, even though Texas has a higher property tax, etc. The player in New York is going to lose a little bit more money through taxes than they would in Texas."

b.) Is the tax difference on that hypothetical contract from Texas compared to a New York or a California substanial enough to really make a significant difference on the quality of living?

"Not really," the CPA said. "Again, it all depends on how the person spends it. If the player, or person, makes $10 million (the IRS) assumes they are going to spend all of it, and then some, because they usually do."

c.) In your best guess, is a person ever really influenced on varying tax rates?

"No. We should all be living in New Hampshire where there is no state or sales tax," the CPA said. "My experience in dealing with higher end clients is you are right - they don't think about it. They see the number and that's it."

Bottom line: A player is going to go where he wants, and taxes won't have a thing to do with his decision ... even if they should. 

@MacEngelProf
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