When Shohei Ohtani of the Los Angeles Dodgers signed a 10-year contract worth a total of 700 million U.S. dollars (9223 billion won) and included a provision for postponement of annual pay, local governments argued that they should collect taxes. It is expected that there will be moves such as overhauling the system in the future.
The Los Angeles Times reported Tuesday (Korea Standard Time) that Otani could end up not paying tens of millions of dollars in California taxes. There is a loophole in the law. Local legislatures should address it.
Ohtani signed the biggest contract in professional sports history with the Los Angeles Dodgers last month, totaling 700 million U.S. dollars. However, he only receives 2 million dollars during the contract period. He will receive the remaining 680 million dollars after the 10-year contract expires. In order to lower the burden on the LA Dodgers, he first proposed a provision called “defer (deferral of annual salary).”
The problem is taxes.
Taxes in the U.S. are largely divided into federal and state taxes. Federal taxes are classified into seven categories according to income level, with the highest income tax rate at 37 percent. State taxes, on the other hand, vary widely from state to state. While some regions do not have state taxes, such as Texas, Nevada and Tennessee, the Dodgers’ home state of California is one of the regions with high state taxes along with Oregon, Minnesota and Iowa, with the highest tax rate reaching 13.3 percent. Combined with federal taxes, the tax rate exceeds 50 percent.
However, Ohtani does not have to pay tens of millions of dollars in taxes if he leaves California 10 years from now. The LA Times reported that if Ohtani moves outside of California due to a grace period, California could lose about 98 million dollars in tax revenue.
“Under the current tax system, those in the highest tax rate section are allowed to postpone tax indefinitely, causing serious imbalances in the tax structure,” California auditor Malia Cohen said. “This exacerbates income inequality and undermines fair tax distribution. We urge Congress to take immediate and decisive action to correct this imbalance.”
Japan’s Nikkan Sports said, “Even if Otani moves to another region after the expiration of his contract with the Los Angeles Dodgers, there is a possibility that he will have to pay taxes to California.”