The NBA sent teams an email this month detailing the disruption of their trading system under the United States' new tax law. The NBA is still figuring out how to respond.
The new law forces manufacturers, farmers and others to pay more in capital gains taxes, if they trade an asset for something more valuable, and it also applies to sports teams trading player.
“There is no fair-market value of a baseball player. There isn’t,” said Daniel R. Halem, the chief legal officer of Major League Baseball. “I don’t really know what our clubs are going to do to address the issue. We haven’t fully figured it out yet. This is a change we hope was inadvertent, and we’re going to lobby hard to get it corrected.”
Officials from the NBA and MLB expressed hope that Congress would revisit the provision.
For decades, teams have not paid taxes on trades, and thus have not had to account for the value of the assets they are exchanging, for tax purposes.
The Internal Revenue Service allowed baseball owners to depreciate the cost of player contracts over several years to reduce the team's taxable income. It declared that “trades of player contracts owned by major league baseball clubs will be considered exchanges of like-kind property” under a section of the tax code.