Major League Baseball pitcher Merrill Kelly is set to keep nearly $2.5 million more each year by signing with the Arizona Diamondbacks instead of the San Diego Padres in California. This decision, affecting the next two seasons of his $40 million contract, primarily stems from the vast difference in state income taxes between Arizona and California.
The disparity arises mainly from California’s high income tax rates combined with additional levies, making it financially smarter for Kelly to base himself in Arizona.
How State Income Taxes Create the Largest Financial Divide
California enforces a top marginal income tax rate of 13.3%, which includes a 12.3% bracket plus an extra 1% Mental Health Services Tax on incomes above $1 million. Applying this rate to Kelly’s $20 million salary results in about $2.63 million owed to the state each year.
In contrast, Arizona charges a flat 2.5% income tax regardless of how much is earned. For the same salary, Kelly would pay only about $500,000 annually in state income tax to Arizona, generating a difference of roughly $2.13 million in savings solely from income tax.
Additional Tax Factors That Influence the Overall Savings
Besides income tax, California deducts 1.3% from wages for State Disability Insurance with no wage limits, which would cost Kelly about $260,000 on a $20 million salary each year. Arizona does not have this tax, adding to Kelly’s savings by choosing to play in Arizona.
Property taxes and sales taxes are less impactful in comparison. For example, on a $10 million home, California’s property tax rate of about 0.70% means annual taxes of approximately $70,000, compared to Arizona’s lower effective rate of roughly 0.44%, translating to $44,000. This $26,000 difference adds tens of thousands to the total savings but is small relative to income tax savings.
Sales taxes depend on lifestyle and location, typically varying between 1 and 1.5 percentage points. Even if Kelly spends $1 million annually on taxable items, this would only add about $10,000 to $15,000 in sales tax differences between states, a modest factor in the overall calculation.
Merrill Kelly’s Personal Explanation for Choosing Arizona Over California
The stark contrast in tax obligations played a crucial role in Kelly’s decision to decline offers from California-based teams. After considering his financial outlook, he opted to “come home” to Arizona, where the tax burden is far lighter.
I don’t think it’s any secret on how much money you get taken out of your pocket when you go to California,
Kelly explained, highlighting the high cost of taxes in the state.
It’s just, like I said, they take too much money out of my pocket, man. The taxes over there are a different level.
We had my numbers guy run the numbers, and it just made more sense to come home,
he added.
How California’s Tax Rules Affect Other Professional Athletes
Kelly is not alone in experiencing the heavy tax impact from California’s policies. Seattle Seahawks quarterback Sam Darnold recently faced a $249,000 California tax bill after winning Super Bowl LX in Santa Clara, despite earning just $178,000 for the game itself.
California taxes out-of-state athletes based on the number of “duty days” they spend working in the state. Since Darnold and his team spent eight days in California, his income was prorated accordingly and taxed at the steep 13.3% rate.
Using this method, Darnold’s tax calculation was: dividing his $35 million salary by approximately 200 total duty days, multiplying by 8 California duty days, then applying California’s top tax rate.
Had California’s rate been replaced with Arizona’s 2.5% flat tax, Darnold’s bill would have been roughly $47,000 instead, saving about $200,000. This change would also have ensured Darnold kept more than his bonus, rather than losing money to taxes.
The Broader Implications of State Tax Differences for Athletes and High Earners
The financial gulf between states like California and Arizona exposes how substantially tax burdens can influence where athletes choose to live and play. High earners, especially in sports and entertainment, often weigh these tax factors heavily in contract negotiations and personal decisions.
For Merrill Kelly, the difference exceeded the cost of a luxury lifestyle and became a decisive factor in his move. With millions at stake yearly due to income and disability insurance taxes, Arizona offers an attractive alternative.
This tax-driven migration reflects wider frustrations among professionals subject to California’s high tax rates and creates tension in retaining top talent within the state.
As athletes and their advisors continue to analyze tax laws, states with lower tax liabilities may increasingly attract high-profile talent, potentially reshaping the professional sports landscape.
