Houston woos Dwight Howard with state income tax

In the wake of Lebron James’ second-straight NBA title and the end of the professional season, free agents across the league are considering their next moves. Some of the biggest names to enter the free-agent fray include the Los Angeles Lakers’ Dwight Howard and New York Knicks sixth-man, J.R. Smith. As these athletes consider their decision, they’ll...

In the wake of Lebron James’ second-straight NBA title and the end of the professional season, free agents across the league are considering their next moves.

Some of the biggest names to enter the free-agent fray include the Los Angeles Lakers’ Dwight Howard and New York Knicks sixth-man, J.R. Smith.

As these athletes consider their decision, they’ll inevitably have a laundry list of must-haves to consider, including team chemistry, championship potential and geography.

But another major factor has been thrown around in the media this year: how state income taxes will affect salaries.

Ultimately, the majority of the NBA’s free agents will come away with a multimillion-dollar haul.

But consider this: of Dwight Howard’s $108 million five-year contract with the Lakers, as a resident of California he would only collect $59.6 million – just more than half of the contract’s gross value, according to ESPN.

Two Texas teams, the Houston Rockets and Dallas Mavericks, were actively pursuing Howard – and used Texas’ lack of state income tax as bait.

From ESPN:

Over a four-year period, Howard would gross $94.4 million off a contract with the Lakers and $87.6 million from a contract with an NBA team in Texas, but [Robert Raiola, a certified public accountant with FMRTL in Cranford, N.J.] says the difference in the state income tax between California and Texas would result in Howard netting $2.6 million more from a Texas-based team. That’s even including jock taxes, which are the taxes Howard would have to pay states when he plays on the road.

According to CBS Sports, Howard will sign with the Rockets.

But California, which has the nation’s highest state income tax – and a top rate of 13.3 percent – isn’t the only state in the country with these sorts of financial roadblocks when it comes to recruiting top talent.

Any coach trying to draw players to the Bulls has to overcome Illinois and Chicago’s uninviting tax environment.

So how does this affect a Bull?

According to the Chicago Tribune, Bulls star Derrick Rose signed a five-year, $94.8 million contract extension with his team in December 2011. The Tribune reported that Rose’s extension began in the 2012-13 season, at $16.3 million in the first year.

Overall, assuming he filed as a single individual with no deductions, Rose will pay more than $7 million in state and federal income taxes in his first year – $815,000 of that will go to the state of Illinois.

Though Rose is a hometown hero who has found a niche with his teammates and coach, this is still a pretty pricy tax tab to swallow.

And it would be even more difficult to pitch this tax price tag to an out-of-stater with no ties to the city.

So what’s the lesson here?

It’s not very often that you hear ESPN analysts drop terms like “state income tax” on air.

As it turns out, even NBA all-stars pay attention to a state’s tax environment.