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The Tax Prophet Newsletter   Issue #55 November, 2007

REDUCE TAXES!
CHECK OUT THE TAX PROPHET'S Action Guides


In This Issue:
Introduction
Residency Laws
High Stakes
New York
Conclusion


NY Yankee Derek Jeter -
A Tax Outlaw?


Introduction

Where does famed Yankee shortstop and New York socialite Derek Jeter reside, Florida or New York? The answer may cost him millions in back taxes and interest. Why?

Jeter says he lives in Florida, a state with no personal income tax. New York begs to differ, pointing out that Jeter works for the New York Yankees, owns a $12.7 million apartment in the Trump World Towers in Manhattan and, most damning in the eyes of the taxman, Jeter "has immersed himself in the New York community" (whatever that means).

Residency Laws

With multi-millionaires moving to Florida, Nevada, Texas and Washington (states with no personal income taxes) to lower their taxes, high income-tax states, notably California and New York, are aggressively challenging these residency claims, hoping to recoup millions in additional revenue.

Note: New York's combined city and state top tax rate is 12.15%; California's is 10.3%

The residency inquiry is not limited just to the location of one's principal residence, although Deter clearly harmed his case by purchasing a lavish apartment in New York, while asserting he actually lives in Tampa.


High Stakes

While Jeter's salary attributed to Yankee home games is New York source income and taxable by the state, if he loses his Florida residency claim, New York will tax all his earnings, including endorsements and appearances, a sum that could dwarf his baseball salary.

Note: Athletes and entertainers in this situation should operate their promotional and endorsement activities through a separate company (typically a corporation) located in a no income-tax state.


New York

While the question of Jeter's residency is cloudy because he maintains homes in both states, it is the tax collector's novel theory -- Jeter is a New Yorker at heart because he "parties" there and keeps his most valuable possessions in his Manhattan apartment -- that has people scratching their heads.

The judge assigned to the case nailed the argument's fatal flaw, stating, "This line of inquiry is so vague as to be almost meaningless." Agreed. Do we really want state tax authorities looking into an individual's "heart" to resolve questions of residency? How about using objective criteria, such as the number of days physically present in the state and the location of family and business interests, to resolve this issue?


Conclusion

High-profile celebrities and athletes need to be careful and consistent: If they claim to live in Florida, they should not purchase a personal residence in a high-tax state and they should really live in the state of their claimed residence.

My advice to Derek: Live in Florida, but party in New York on the weekends.



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All contents copyright 2007 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet is a registered trademark of Robert L. Sommers.