It’s still hard to believe, but Robinson Cano will not be a Yankee in 2014. Baseball’s premiere second baseman has chosen to take his talents to Seattle and its pretty clear that the money was the motive — the agreed upon deal of 10 years and $240 million dwarfed the Yankees’ reported offer of 7 years and $175 million. The Mariners were willing to pay quite a bit more than the Yankees, which is why Cano ultimately decided to leave, but the income tax rates in Seattle and New York City likely also played into Robbie’s decision.
After state and federal taxes, Bloomberg estimates that the Mariner’s offer bested the Yankees’ by $42M. I estimate that roughly $15M of this gap is the direct result of the different state taxes. To summarize, the Mariners offered Cano $65M more than the Mariners, federal taxes cut this difference to about $27M, and the varying state taxes cause it to jump up to $42M.
State taxes are based on where you work – something that’s always changing for a major league baseball player. Players are taxed based on where they physically play each day. The State of Washington has no personal income tax, while the State of New Jersey (where Cano currently resides) has the fourth highest top marginal tax rate in the country at 8.97%. New York’s tax rate isn’t much more favorable at 8.82%.
For the next decade, Robinson Cano will be playing 81 games a year in tax-free Washington rather than in New York, which nets him something close to $2M per year. If Cano had lived in New York City, which has it’s own separate income tax, his tax savings would have been even larger – by another $1M per year.
So was it the $15M in taxes that turned Cano away from the Yankees? Probably not. Taxes or no taxes, the Yankees’ offer fell well short of what Cano ended up getting – those three extra years are pretty big. Still, the tax savings are not insignificant. While it may not have played a huge role in his decision, I would bet Robinson Cano consulted with a tax planner this winter to lay all of the scenarios out for him. Obviously there are bigger factors at play, but income taxes do influence players’ decision-making; and for what it’s worth, the high income taxes of New York area put the Yankees at a disadvantage in this department.