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Raptors to Kings: Rudy Gay’s New Total Tax Burden is No Championship Contender

By on Dec 10, 2013 | Comments

In the final hours of December 8th, it was announced the Toronto Raptors had agreed to send small-forward Rudy Gay to the Sacramento Kings in a seven-man trade. In addition to Gay going to the Kings, the Raptors are also trading Aaron Gray and Quincy Acy in exchange for John Salmons, Greivis Vasquez, Patrick Patterson, and Chuck Hayes. While Gay has the largest contract this season ($17.8 million) and is the most significant player involved in trade (having been the eighth overall pick in the 2006 NBA draft), the newest members of the Raptors roster will actually benefit the most from this trade – in terms of after-tax earnings. While Gay hopes that a new team brings a renewed love for the game and increases his chances of winning an NBA championship, all he is receiving at the moment is a higher income tax rate.

For the remainder of the 2013-2014, the newest Sacramento King is set to earn a base salary of $17.8 million. If he decides to not opt-out of his contract at the end of this season and remain with the Kings, Gay will earn $19.3 million for the 2014-2015 season. That’s $37.1 million for 2 seasons. However, much to Gay’s dismay, the move to Sacramento will see his total tax liability outweigh his after-tax earnings: an issue he did not have playing in Toronto, Ontario, Canada:

Team/Season/Salary

Total Tax Burden

Total Tax Liability

After-Tax Earnings

Toronto Raptors

(2013-14/$17.8 million)

49.53%

$8.82 million

$8.92 million

Sacramento Kings

(2013-14/$17.8 million)

56.7%

$10.09 million

$7.71 million

Toronto Raptors

(2014-15/$19.3 million)

49.53%

$9.56 million

$9.74 million

Sacramento Kings

(2014-15/$19.3 million)

56.7%

$10.94 million

$8.36 million

For illustrative purposes, the total tax burden as a member of the Sacramento Kings is calculated by adding the top marginal federal income tax rate of 39.6% plus the Medicare surtax of 3.8% plus California’s state income tax rate of 13.3%. The U.S. total tax burden also does not include tax deductions. The total tax burden as a member of the Toronto Raptors is calculated by adding the federal and provincial tax rates plus surtaxes.

That’s $1.21 million and $1.38 million less for this and next season, respectively.

Even after calculating the appropriate tax deductions, Gay will still have a total tax burden of 50.93 percent: 1.4 percent higher than the income tax rate he paid while playing in Toronto. This results in total tax liabilities of $9.07 million and $9.83 million, and after-tax earnings of $8.73 million and $9.47 million respectively over the current and next season.

And this is all before calculating his “jock tax” liability for away games.

One would think that moving back to the United States from a Canadian province would allow for greater earning potential. Unfortunately, California provides no economic refuge for taxpayers, even those who are professional athletes.