Mickelson and the Sports Star Tax Migration
If Lefty moves to a state with no income tax like Florida, he'll find he has plenty of elite athlete company..
January 27, 2013, 3:38 p.m. ET
By ALLYSIA FINLEY
America's top-grossing golfer Phil Mickelson drove himself into a bunker on Jan. 20 when he said that federal and California state tax hikes had made him contemplate making "drastic changes" in his life—including, it was widely assumed, moving to a no-income-tax state such as Texas or Florida. But he was only stating publicly what many professional athletes are mulling privately.
No doubt they'll keep their thoughts private, too, given the uproar that ensued. The golfer known as Lefty outraged lefties by noting that a tax burden of more than 60% seemed excessive. Didn't he know that athletes—unlike Hollywood celebrities—are supposed to keep their politics to themselves? Mr. Mickelson quickly apologized for teeing off his critics. "Finances and taxes are a personal matter," he said. In any event, Mr. Mickelson certainly wouldn't be the first athlete to consider relocating for tax purposes.
Last week, Lefty's rival, Tiger Woods, acknowledged that he left California for Florida in 1996 when he turned pro because of the difference in state tax. California's top marginal rate then was 9.3% for individuals earning more than $32,000. The move was particularly farsighted given that rates on high earners in California have since soared.
In November, voters in California approved a ballot measure raising the top rate on income over $1 million to 13.3% (the increase applies retroactively to last year). According to SportsIllustrated.com, Mr. Woods grossed $56.4 million in 2012. As a Floridian, he will keep about $7.5 million that he otherwise would have owed to the state of California. His net tax savings over his 16-year career come to about $100 million. Mr. Mickelson last year earned $60.7 million. Paying the 13.3% California rate, he will owe the state $8 million.
"The day California passed the tax increase, I received three calls from concerned athletes," accountant Steve Piascik, president of Piascik & Associates, told me. His firm is one of the largest representatives of professional athletes in the country.
Mr. Piascik isn't urging his clients to pack their bags just yet, but he says that some are considering moving to reduce their tax liabilities. And several of his clients, whose names he won't disclose, have already ordered their lives around the tax code: They play for teams in California but live elsewhere for tax reasons.
Former Los Angeles Angels of Anaheim right fielder Torii Hunter (who recently signed with the Detroit Tigers) lived in Prosper, Texas, during the baseball off-season. The main reason he "moved to Texas is because it doesn't have state income tax," the outfielder told the Orange County Register last year.
The benefit of living in a state without an income tax can be diminished by the "jock tax" that states impose on money earned by athletes when they're playing or training in the state. (Luckily for baseball players, spring training is in no-tax Florida or low-tax Arizona.) But in sports like tennis and golf where athletes can train anywhere in the world, a preponderance happen to migrate to states without an income tax.
For instance, Serena and Venus Williams grew up in Compton, Calif., but moved with their father to Florida in the early 1990s. Many of the top teaching pros in tennis set up shop in Florida. Note also that parents can afford to pay more for their children's training in states without income tax, since the parents keep more of their earnings.
The Williams sisters currently reside in Palm Beach Gardens, Fla., not far from 23-year-old pro golfer Michelle Wie. Upon graduating from Stanford University last year, Ms. Wie moved with her parents from Palo Alto, Calif., to Jupiter, Fla. Farther up the Florida coast in Coral Gardens lives 19-year-old Sloane Stephens, who unseated Serena Williams in the Australian Open quarterfinals last week.
Meanwhile, 25-year-old Sam Querrey, the second-highest-ranked American in men's tennis, has followed his parents to Las Vegas—Nevada also has no income tax—from Thousand Oaks, Calif. Like Mr. Querrey, rising golf talent Nick Watney spent his formative years in California but has put down roots in Las Vegas.
For journeymen and up-and-comers, California's tax rates can be a major handicap. A few hundred thousand or even a million in prize money isn't such a fortune when an athlete has to pay for travel, coaches, accountants, agents and miscellaneous training-related expenses. Uncle Sam also skims his "fair share" off the top—and that share is rising.
Federal tax rates on income above $400,000 jumped this year to 39.6% from 35%. Meanwhile, ObamaCare levies a new 3.8% surtax on investment income and raises the Medicare tax by 0.9% on wages over $200,000. Limits on itemized deductions for high earners have also been reinstated, which will raise many athletes' marginal rates by one to two percentage points.
Mr. Mickelson was merely reading the wind when he floated the idea of making "drastic changes." PGA Tour Commissioner Tim Finchem, a former adviser to President Jimmy Carter, noted during the Mickelson brouhaha that "there are businesses relocating out of California because they can operate better in states that have lower tax rates." He also noted: "Generally, people making decisions based on the tax rates in California, on top of the federal tax rates, is not a unique thing."
No kidding. About 3.5 million Californians have migrated to other states over the past two decades. Almost anywhere they chose to go would allow them to enjoy greater returns on their labor. Is it really surprising that athletes like Mr. Mickelson might be keeping an eye on the leaderboard?
Ms. Finley is an editorial writer for the Journal.
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