The New York Yankees know that they won't only have to give Cliff Lee the biggest cash number to sign the star free agent. They'll have to give him the biggest real value as well, a difficulty given the state's tax structure, The New York Times reports.
Taxes on contracts are prorated per number of days worked in each state, and since Texas has no state tax, the Rangers actually have a significant monetary advantage over the Yankees, which are subject to a 9 percent state income tax and 4 percent city tax. The quantity of the money lost to taxes could be millions.
However, the Yankees might have a solution. They could simply offer Lee a seven-year deal significantly larger in face value than those offered by any other party.
If they don't choose to do that, they still have other ways to attract the left-hander.
According to Lester Marks of EisnerAmper, Lee could "deduct his state and local taxes from his federal taxes," or he could have the Yankees pay his local taxes. The team also could convey to Lee that the difference in endorsement money from being in New York versus being in Texas would more than compensate for the money lost to taxes.
The Yankees have offered Lee a seven-year deal, while the Rangers have given their ace a menu of options.