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Kevin Durant broke our hearts in Oklahoma City yesterday with his announcement to take his game to California and join the Golden State Warriors. He said all along his decision would be a “basketball decision,” and he must have meant it because the tax consequences for his “basketball decision” could exceed $1 million a year for him. Durant could have saved a pretty penny by remaining in Oklahoma City.
Each NBA team plays 41 home games in any regular season. A premier team such as Golden State, and what the Oklahoma City Thunder would have been with KD, will potentially play an additional 16 home games through the playoffs if they make it to the NBA Finals. That’s a total of 57 home games and 53 away games in a season.
What some don’t realize is that professional athletes generally pay taxes in the states in which their games are played. It’s called the “Jock Tax,” and it creates a very complicated tax return for players at the end of the year. Players like Durant typically only experience the tax ramifications of their home state for the home games played, local property tax laws, and any other local taxes applicable in their home community.
Kevin Durant reportedly committed to sign a contract with Golden State for $26,500,000.00 for the first year. That contract will pay him $240,909.00 per game. Using our above number of home games, KD will be paid $13,731,813.00 over the course of a good season, for just the games played on his home court. We don’t know the details of the contract, but this is only an exercise to demonstrate the tax ramifications of the state in which you live, so bear with me.
California has a top state income tax rate of 12.3% for any amounts earned over $526,444.00, plus a 1% surcharge for mental health services on taxable incomes of $1,000,000.00 or more. Oklahoma has a top income tax rate of 5.25%.
At the California effective top tax rate he would pay $1,812,752.00. At the Oklahoma top tax rate he would pay $720,920.00. The tax ramifications to Kevin Durant’s decision to relocate, could result in a cost to KD of at least $1,091,832.00, that he wouldn’t have to pay in Oklahoma.
I realize there are few athletes better advised than Kevin Durant, and that’s good, because he’s going to need all the advice and tax planning he can get as he tries to protect what he’s got. Oh, and that $300 Million Nike deal, he’ll probably have to pay taxes on that in California too if he’s going to be calling the state home.
Kevin Durant said he was making a basketball decision by his move. He proved that true by choosing to relocate to California. There’s no reason he won’t win multiple championships, but as a business decision it was not the best he could have made. It’s critical when deciding where to domicile your business or your family, that you consider the ramifications of the decision on your tax liability. Every state subjects their residents to a tax code that should be understood prior to making the decision to call it home. The big raise that motivated the relocation to California and away from Oklahoma or Texas may not look as big on your bank statement as it appeared on the offer letter.
We wish KD all the best in Golden State, except for those few times he’s playing our Oklahoma City Thunder. I’m sure he will look forward to returning for those games in OKC, if for no other reason than our more favorable income tax. Best of luck KD!
The estate and business planning attorneys at Ball Morse Lowe advise individuals and business on the strategic protection of their business and estate in an effort to maximize value. If we can assist you, please contact us today.
