Sports trades could be taxed under U.S. law changes
A tax reform bill passed by the House last year will force manufacturers, farmers, and potentially sports teams to pay more in capital gains taxes when assets are traded.
Rep. Kevin Brady of Texas, whom President Donald Trump called "the king of those tax cuts" after he acted as the House's chief tax writer, is a huge Houston Astros fan who was in attendance during the team's visit to the White House. However, he may lose some friends on the team if it incurs new charges under the bill he helped pass.
"There is no fair market value of a baseball player. There isn't. I don't really know what our clubs are going to do to address the issue. We haven't fully figured it out yet," Daniel R. Halem, chief legal officer for Major League Baseball, told Jim Tankersley of the New York Times. "This is a change we hope was inadvertent, and we're going to lobby hard to get it corrected."
According to Tankersley, the National Basketball Association sent out emails this month detailing the new law and how it may affect trades. Officials from both MLB and the NBA expressed hope that Congress would correct the provision.
The rewritten tax law essentially replaced the term "like-kind," which allowed the trade of certain assets without paying taxes on gains until the asset was later sold, with "real property," which only exempts land or other real estate.
The Internal Revenue Service has allowed the trade of players and their contracts, which are frequently in the multi-million-dollar range, to go untaxed. However, it's unclear if that will continue under the new language.
"I don't think that they thought about baseball when they thought about this change," Kari Smoker, an accounting professor who has done consulting for NBA and National Hockey League teams, told Tankersley. "It raises all kinds of issues, which I think were easier to ignore, probably, when we had a simple rule that it was a like-kind exchange."
It isn't clear if the issue will be resolved anytime soon, or how it will impact North American sports leagues, but it has raised questions about how players should be valued and whether transactions between teams should be taxed.