Professional sports leagues now stare at new taxes amounting to millions of dollars. Tax bills would be imposed on trading the player contracts. The law change means millions of dollars can now be taken by the taxman. Things have come to such a pass that Major League Baseball has already lobbied Washington for an exception.
The new tax imposition came as a result of “base-broadening”. The provisions were already present in the tax bill. All they needed was simply a tweak, and this was done. A few taxes were imposed to acquire new federal revenue. These paid for all the taxes which were previously cut. The lawmakers required extra money to pay for such rates. The method they discovered was to close loopholes like these embedded in the provision.
The new law affects sports trading in a major way. The players must be traded in a manner where there could be taxable values. It means teams must calculate the value of a player in dollar terms. They also must calculate how much money the player who is being given away is worth. Taxes will be imposed if they get more money-back compared to what they gave for the player. This is the capital gains tax. It is thus important to correctly ascertain the value of each and every player in the team.
Huge tax jump
The tax hit could be substantial in such cases. One example of this could be the Houston Astros. When they were on their way to win the World Series, trading was done for Justin Verlander, a pitcher from Detroit Tigers. The Astros reportedly got in excess of $10 million above what they previously gave for the player. If the capital gains tax was 15 percent, the team would have paid a neat $1.5 million to the IRS. The real tax sum is much higher as the Houston Astros have made many such deals over the course of the year.
The sports leagues have already lobbied Congress for an exception. Major League Baseball was the first off the bat. Congress may not agree due to partisan politics. A stalemate could possibly occur as the Democrats would not spare any inch for the law that was passed by the Republicans sans any Democratic votes. The sports leagues may also conversely win. There is historical precedence that Congress always succumbs to the sports leagues.