Green in the Red; All Others Cash in on Tax Savings in Kawhi Leonard Trade

The San Antonio Spurs’ small forward Kawhi Leonard and Toronto Raptors shooting guard DeMar DeRozan were unhappy after being the centerpieces of a blockbuster NBA trade on July 18. 

But Leonard’s teammate, shooting guard Danny Green, is the one who will be upset with his new tax bill. Green will see his tax rate jump up 15 percent after going from Texas, which doesn’t have state income tax, to Toronto, Canada, which does, according to analysis from Bloomberg Tax.

Such a leap isn’t uncommon among NBA players, who regularly bounce between teams—and see their tax bills fluctuate, too.

The same tax rate increase will occur for Leonard. However, according to Leonard’s contract, Toronto received $5 million in cash consideration from San Antonio to cover Leonard’s tax rate increase.

However, Leonard and Green will get some tax relief when playing away games in the eastern conference, made up of low-tax states, and playing six regular season games in Florida, where there is no income tax. They will also play six fewer games in California, which has the nation’s highest state personal income tax rate of 13.3 percent.

For DeRozan, the trade was a betrayal. DeRozan was adamant about wanting to retire in Toronto, saying on the Jeff Blair Show, “that’s the one thing you can never question: my loyalty to the city.”

If he doesn’t find comfort in playing for a hall of fame coach, the close to $10 million in tax savings he will have over the remaining three years of his contract could provide some solace.

Playing in San Antonio results in significant tax savings and will only subject a player to the highest marginal tax rate of 37 percent, since there is no state income tax in Texas. Toronto’s top income bracket has an average tax rate and marginal tax rate of over 53 percent once Ontario’s provincial tax of 13.16 percent is included.

In addition to DeRozan and a protected first-round draft pick next year, the Spurs got center Jakob Poeltl.

Here’s a look at Bloomberg Tax’s analysis of the tax implications from the Leonard-DeRozan trade:

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Players’ tax bills also fluctuate based on the location of their games each season, because they must report income in those places.

DeRozan and Poeltl will play more games in California since San Antonio is in the Western Conference, resulting in a slightly higher away-game tax bill initially.

A significant portion of the California taxes will be defrayed by San Antonio being in the Southwest Division of the Western Conference, with 12 total games being played against teams in Texas, where there is no income tax and Tennessee, where income tax is limited to interest and dividends. 

While Leonard may not like his team and his tax bill now, it could be instructional for the future. Media outlets have previously reported that he longs to play in Los Angeles, for either the Clippers or the Lakers. The trade to Toronto allows him to adjust to the reality of a higher state income tax bill.

Should he decide to play in Los Angeles after next year, over 65 percent of his NBA revenue would be taxed at California’s 13.3 percent tax rate. Ouch.

-by Patrick Vincent