By delaying almost all of his record-breaking $700 million contract with the Los Angeles Dodgers, Shohei Ohtani will avoid paying an estimated $90 million in c state income taxes. Legislators from California are currently working to alter the federal tax rules in order to keep Ohtani’s contract structure unique from other high-earners in baseball and elsewhere.
On Wednesday, state senator Josh Becker proposed legislation urging Congress “to establish a reasonable cap on deferred compensation” in the United States. By a vote of 6-1, the Revenue and Tax Committee approved Senate Joint Resolution No. 14. In the upcoming weeks, the State Senate floor will debate and vote on the resolution, which was sponsored by State Controller Malia Cohen.
“Fairness is the main issue here,” Becker stated over the phone. This money was earned. This is not money for retirement. This is local income that ought to be subject to local taxes. It was not intended to be taken into consideration by the federal tax code. It’s an enormous hidden-ball ruse.
Over the course of his 10-year contract, Ohtani will only take $2 million in salary annually from the Dodgers. Ohtani and his advisers claimed they suggested this arrangement because it allows the team more financial freedom to keep investing heavily in other elite players.
However, Ohtani will also be able to avoid paying state taxes on the deferred sums if he moves out of the state by postponing $680 million of his $700 million contract. Ohtani would most likely go back to Japan after his contract expired.
Congress changed the federal tax code in 1996 when it passed legislation prohibiting states from taxing out-of-state citizens who receive deferred compensation if the payments are provided in equal installments over a minimum of ten years. According to Becker, those laws were created to safeguard pension income.
According to Becker, “the amounts being discussed were $30,000, $100,000, and at some point, it became unlimited.”
Ohtani’s sponsorship income sources are unmatched by major league athletes, hence his contract structure is seen as special and unlikely to be replicated in the business. However, the deal might create a precedent for high incomes outside of baseball in a state where the top tax rate is among the highest in the country at 13.3 percent.
