USA Tax Bill Reportedly Could Subject NBA, MLB Trades to Capital Gains Taxes

One of the provisions in last year's tax cut passed by Congress and signed into law by President Donald Trump could have a major impact on MLB and NBA trades going forward. 

According to Jim Tankersley of the New York Times, the bill "levies a large new tax on the [Houston] Astros, and similar franchises across professional sports."

Per that report: "The law changed a corner of the tax code that mostly applies to farmers, manufacturers and other businesses that until recently could swap certain assets like trucks and machinery tax-free. But by adding a single word to the newly written tax code—"real"—the law now only allows real estate swaps to qualify for that special treatment."

The issue for professional sports franchises? That distinction in the tax code means, "the Astros and other sports franchises could now face capital gains taxes every time they exchange or trade their highly paid players," per Tankersley.

That has caused both MLB and NBA teams to question how precisely you determine a player's true value. Some players are more valuable to certain teams than they would be on other organizations. Some players are more immediately valuable and other players might hold a great deal of potential or future value. 

If the MLB MVP voting is controversial just about every year, as fans, players, executives and pundits offer differing definitions of value, imagine how complicated it would become from a taxation perspective.

MLB chief legal officer Daniel R. Halem argued it would be an impossible task.

"There is no fair-market value of a baseball player. There isn’t," he told Tankersley. "I don't really know what our clubs are going to do to address the issue. We haven't fully figured it out yet. This is a change we hope was inadvertent, and we're going to lobby hard to get it corrected."

Halem also "said the league was asking the Treasury Department for guidance on how to come up with valuations for tax purposes. If such a system was the intended result of the law, he said, 'then write some regulations, tell us what you mean.'"

To this point, the IRS has allowed the MLB and NBA to swap player contracts in trades without taxing the exchange. With little clarification from the IRS or Senate Finance Committee on how the tax law changes would be specifically instituted for professional sports organizations, the situation remains a question mark.

"I don’t think that they thought about baseball when they thought about this change," SUNY Brockport accounting professor, Kari Smoker, 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."