A single four-letter word — added to a provision of the tax code — has professional sports leagues scrambling, as teams face what could be millions of dollars in new taxes.
The revision changed a section of the tax code that applies to “like-kind exchanges.” Under the old law, farmers, manufacturers and other businesses could swap certain “property” assets — such as trucks and machinery — without immediately paying taxes on the difference in value.
The 2017 tax overhaul inserted the word “real” before “property.” With that, the provision now applies only to real estate swaps.
That means teams could be looking at tax bills in the millions for trading player contracts. Major League Baseball is already lobbying Washington to carve out an exception.
Jim Tankersley, who reported on the issue this week for The New York Times, explains what the change could mean for teams, and how leagues are responding.
This interview has been lightly edited for clarity.
What the provision is, and how it changed
The provision mostly applies to farmers and fleet owners, people who own machinery. What it allows you to do is, if you trade property … you don’t pay taxes on the value you gain in that trade, until you sell the truck. …
This provision has been narrowed now, so that it only applies to real estate. And that excludes trucks and farm animals … and baseball players.
This is a $31 billion savings over 10 years, according to the Joint Committee on Taxation.
On why lawmakers narrowed the tax break
There were a lot of provisions like this in the tax bill. Lawmakers call these changes “base-broadening,” but what that really means is: they’re raising some taxes to capture new federal revenue, in order to pay for the tax rates they cut. Lawmakers needed more money to pay for those rates, and the way they found that money was to close loopholes like the one that was in this provision.
On how this affects sports trading
Right now, based on a ruling from the ’60s, when teams trade players, [the players] are treated like a “like-kind exchange.” … A player contract is like a truck.
But now, because they’re not real estate, these players have to be traded in a way that there might be taxable values.
What that means is, teams have to figure out how much a player is worth to them in dollar figures, and how much the player they might be giving away is worth. And if they’re getting more back than they gave, they’ve got to pay taxes on that — capital gains taxes.
So the question is: How do you value [each player]? Is he ‘how many extra wins he brings to your team’? Is he ‘how many extra wins he brings for how much money he costs’? Or is he some special formula of ‘how much he would bring to you value-wise’ that is different from one team to the other, because your team might have three second basemen and my team has none?
On the size of the tax hit
The Houston Astros won the World Series last year. And on the way to winning the World Series, they traded for a pitcher named Justin Verlander from the Detroit Tigers. Some experts I talked to estimate that the value the Astros got back in that trade was probably about $10 million above what they had given up. So in that case, $10 million value, 15 percent capital gains tax — that’s $1.5 million that the Astros would have give to the government. And the Astros have made several other trades like that over the last few years. That adds up.
On sports leagues lobbying Congress
Major League Baseball says they’re already at work on it. I would not be surprised if the other leagues are close behind. …
One reason Congress might not [go along with what major sports leagues want] is because of Washington partisan politics. Democrats don’t seem likely to give Republicans any fixes on this law that [the GOP] passed without Democratic votes, so you could see a stalemate going forward on this. A reason to think that sports lobbyists might actually get Congress to cave is that Congress always caves to sports leagues. Baseball has an antitrust exemption. ….
It’s a real possibility that [Congress could just pass] the ‘Make Sports Trades Great Again’ Act of 2018 on a voice vote, because nobody wants to be the one who stopped their local team from making the trade it needed to win a championship.
AILSA CHANG, HOST:
In Austin, Texas, new details are coming to light this evening about the man police say is behind a series of deadly bombings. Police say he left behind a 25-minute video that amounts to a confession. The video does not reveal a clear motive. Here’s Austin Police Chief Brian Manley.
(SOUNDBITE OF ARCHIVED RECORDING)
CHIEF BRIAN MANLEY: Having listened to that recording, he does not at all mention anything about terrorism, nor does he mention anything about hate. But instead it is the outcry of a very challenged young man talking about challenges in his personal life that led him to this point.
CHANG: Officials say he made the tape last night just hours before killing himself in an explosion as a SWAT team moved in on him. We’re joined now by Nadia Hamdan of member station KUT who was at a news conference that just wrapped up. Welcome, Nadia.
NADIA HAMDAN, BYLINE: Hi. Thanks.
CHANG: What are some of the new things we learned after that news conference?
HAMDAN: So as you said, it looks like the suspect left a 25-minute video. Our interim police chief Brian Manley said that it probably was created after the suspect had learned the police were closing in on him. So it amounts to a confession video. Obviously, yes, (inaudible) will touch base on that again about the fact that there was really no clear motive that was described in the video. But the suspect did go into how he created all seven of the bombs that he created, and he talked about the differences between the bombs.
So obviously law enforcement’s reported that were – there were similarities between all of them, and they do say that there still were similarities. But of course there were small differences. And the suspect had gone into in this video – decided to go into describing how those differences were between each bomb. And of course there were seven bombs. There were the three that were put on the porches…
HAMDAN: …Of people’s homes – those original three. There was a fourth that was done by a tripwire. The fifth and sixth were at those two FedEx facilities. And of course the seventh was the one that exploded in his vehicle.
CHANG: Do authorities know why the bomber did what he did? Do they have any information?
HAMDAN: You know, I even pulled interim Police Chief Brian Manley…
HAMDAN: …Aside after the fact privately and said, are we sure that there was no terrorism or hate crimes as a motive being considered after watching these videos? He said there was nothing in those videos that made them believe that it was terrorism or a hate crime. It just made them feel that this person had personal issues. That is directly from Police Chief Brian Manley.
So as of right now, there is no motive. And he didn’t – you know, during the presser, interim Police Chief Brian Manley did say that sometimes there is no ration for these kinds of things. And it’s unfortunate, but that seems to be what they’re going off of right now.
CHANG: What about this suspect who killed himself, Mark Conditt? What more have we learned about him as a person?
HAMDAN: So our team is working really hard to try and dig that stuff up, but of course it’s very hard to confirm. As of right now, we know he’s 23 years of age. He would have been 24 in June. He is a white male. He lived in a home in Pflugerville. That’s about 20 minutes north of Austin so not even within Austin. But there are reports that he attended courses at an Austin Community College around 2010 to 2012. But he – we also have reports – and it has been since (inaudible) that he was homeschooled by his mother. And on top of that, we are learning that he has no military history. That was confirmed by NPR.
So we’re slowly learning a little bit more about this individual, but really there is not that much to go off of. As of now, there are no real red flags that we can point to to give us any indication as to why he did what he did. But yes, according to the presser – didn’t really give us that much more even given the fact that he did give a confession of 25 minutes on the phone. And that was found this morning. But yes, we are still searching for a motive. But…
HAMDAN: According to our interim police chief, there may not be one.
CHANG: So where does the investigation go from here beyond trying to figure out why he did this?
HAMDAN: Right. So right now, I mean, all of law enforcement that were at the presser this evening did say that the investigation is ongoing, so we are going to keep track of this and keep (inaudible) it. We want to make sure that – they said all the seven bombs that they’ve kept track of have been accounted for, but we still want to make sure that there’s nothing left out there. So we’re just going to keep hyper-vigilant about what’s going on and keep the public appraised as best we can.
CHANG: All right, that’s Nadia Hamdan of member station KUT in Austin, Texas. Thank you very much, Nadia.
HAMDAN: Thank you. Transcript provided by NPR, Copyright NPR.
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