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Shohei Ohtani’s Contract with the Dodgers Could Lose the State Tax Dollars

Jan 23, 2024 | Blog, Celebrity Tax News

Any California tax attorney would agree that the Franchise Tax Board is unwilling to lose tax money, especially from celebrities whose country of residence is likely to change in the future and who would stop paying taxes once they’re not California residents. A 10-year contract entered into recently between Shohei Ohtani and the Los Angeles Dodgers for an unheard of $700 million, has $680 million in deferred payments which become due between 2034 and 2043, when this Dodger, likely not a resident anymore, could legally dodge such high taxes.

As a California resident during the ten years Ohtani will be playing for the Dodgers, he will be subject to the state’s 13.3 percent income tax plus the State Disability Insurance of 1.1 percent payroll tax. These taxes will not apply if he moves out of California, so by deferring them, he can potentially also defer their payment – forever. And this isn’t agreeable to the state’s IRS.

Shohei Ohtani’s Contract with the Dodgers Can Cost the State Big Tax Money

The California Center for Jobs and the Economy, a corporation that benefits the public and provides information on economic trends, believes that Shohei Ohtani stands to save $98 million in taxes by deferring them for 10 years and then moving back to his country of birth.

California Wants Change to the Tax Code to Get Ohtani’s Tax Money

Malia M. Cohen, the California State Controller whose duties encompass accountability and spending of the state’s moneys, wants to change the Tax Code to stop deferred payments and has recently asked Sacramento lawmakers to do so. This change would make Ohtani’s tax liabilities to the state non-deferrable and would give California about $98 million, the state’s gain and Ohtani’s loss.

The State Controller’s Rationale

Ms. Cohen, who has been State Controller since last year and was previously with the San Francisco’s Board of Supervisors, explained in a press release a couple of weeks ago in her reasons for a change she views as fair to all taxpayers:

“The current tax system allows for unlimited deferrals for those fortunate enough to be in the highest tax brackets, creating a significant imbalance in the tax structure. The absence of reasonable caps on deferral for the wealthiest individuals exacerbates income inequality and hinders the fair distribution of taxes. I would urge Congress to take immediate and decisive action to rectify this imbalance.”

“Introducing limits on deductions and exemptions for high-income earners promotes social responsibility and contributes to a tax system that is just and beneficial for all,” she said. “This action would not only create a more equitable tax system, but also generate additional revenue that can be directed towards addressing pressing important social issues and fostering economic stability.”

This change to the Tax Code hasn’t happened yet, but changes happen every year. Some apply to rich tax payers, but you don’t have to be rich or a celebrity for deferments in tax payments to apply to you. If you think you may not be able to defer tax payments, seek the advice of a California tax lawyers to find out your legal options.