New tax law throws a curve at sports franchises
Addition of single word to code could make trades more difficult
WASHINGTON — As President Donald Trump congratulated the World Series champion Houston Astros at a White House ceremony last week, he also heaped praise on himself and congressional Republicans for passing a sweeping tax cut last year. He hailed Rep. Kevin Brady of Texas, the House’s chief tax writer and an Astros superfan, as “the king of those tax cuts.”
What he did not mention is that the new tax law Brady helped draft, and which Trump signed, levies a large new tax on the Astros, and similar franchises across professional sports.
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 allows only real estate swaps to qualify for that special treatment.
That change is meant to capture more federal revenue, in order to partly offset reductions in business and personal income tax rates. It forces manufacturers, farmers and others to pay more in capital gains taxes, if they trade an asset for something more valuable. The Joint Committee on Taxation estimates the change will raise $31 billion over the next decade.
It also means the Astros and other sports franchises could now face capital gains taxes every time they exchange or trade their highly paid players.
The provision is raising concerns and questions across Major League Baseball and the National Basketball Association, starting with: How do you value a player?
“There is no fair-market value of a baseball player. There isn’t,” said Daniel R. Halem, chief legal