Garcia earns favorable ruling in tax court

• By Will Gray
• Mar 16, 2013 11:23 AM ET

As Sergio Garcia moved up the leaderboard this week at Innisbrook, news broke that the Spaniard had also earned an important victory off the course – one that may have repercussions for other professional golfers.

Garcia, who begins the weekend just three shots off the lead in Tampa, was awarded a favorable ruling in a U.S. tax court this week as part of an ongoing battle with the Internal Revenue Service, according to a Reuters report.

At the crux of the case was $1.7 million in taxes that the IRS charged the Spaniard in 2003-04 based on revenue he earned from TaylorMade, money which they deemed "service payments" tied to his use of the sponsor's gear while playing. Garcia argued that the money was from royalties based on the use of his likeness in ad campaigns and, as he was living in Switzerland at the time – a country that spares any royalty income of its residents from U.S. taxes – he was exempt from paying.

According to the report, the court awarded Garcia a 65 percent/35 percent split in the ruling, meaning the majority of the income in question was deemed as royalties, noting that Garcia was TaylorMade's only "global icon" during the years in question.

As part of Judge Joseph Goeke's 37-page written decision, he explained that the Spaniard "was the centerpiece of TaylorMade's marketing," noting that such status was "strong evidence that his TaylorMade endorsement agreement was more heavily weighted toward image rights."

Tax experts feel this ruling could have repercussions for golfers in future contracts depending on their country of residence, the report indicates. Moving forward, players may look to sign endorsement contracts that pay them more in royalty fees, which are generally more difficult to value for tax purposes.