Across the Nation

NHL Taxes: Do State Income Taxes Affect Sports Team Movement?

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In the past, we have discussed how the jock tax has athletes paying multiple states at numerous rates. With this information in mind, how does that affect which team these talented individuals decide to play for?

Let’s take the National Hockey League (NHL) as an example. The quality of the team, management, fans, location, and salary, all play a role in free agency. As is the case in every sport, NHL taxes can also be a big a factor.

The Saving’s in the Team Choice

If a professional hockey player’s priority is to maximize income, it’s not particularly difficult to figure out who to play for. Despite the fact that the jock tax levels the playing field a bit, some teams based in income tax–free states can boast that roughly half of a player’s contract will not be taxed at the state level.

During the most recent NHL off-season, 57 percent of the NHL’s 123 unrestricted free agents went to teams with lower taxes, according a report by Americans for Tax Reform (ATR) and Canadian Taxpayers Federation, highlighted by Forbes. The article goes on to state that these 78 individuals will save an additional $7.9 million combined as a result of moving. Nearly $8 million is not a small chunk of change, but when averaged among those players, it equates to an increase of about $102,000 each. That’s not a staggering pay raise when you consider that as of only a few years ago, the average NHL player earned $2.4 million. Still, a penny saved… you know the rest.

Measuring the Advantage

How much do NHL taxes really affect player movement? While taxes shouldn’t be dismissed as a factor, it’s tough to conclude that lower income taxes give a definite, measurable advantage to teams in states exempt from income tax. Considering all other factors equal, you could expect about half of the players in any given year to go to a team with lower taxes. However, this assumption ignores variables such as competitive balance and the distribution of teams in taxable and tax-free states, but it’s a fair enough baseline to make a ballpark comparison.

An NHL player might choose to play for the Florida Panthers, since Florida is a tax-free state, over the New York Islanders, who play in a high-tax state of about 8.82 percent. But salary also plays a role. Low salary costs for the Islanders means that they pay the second least in combined state and federal taxes, according to the ATR report. That has to do in part with the salary cap put in place in 2005, which prevents wealthier teams from drastically outspending poorer teams.

That said, many teams are spending up to that cap, which can cause taxes to become more of an issue. If there was no cap, teams that are highly taxed could balance those payments with higher salaries, but the cap limits how much teams can spend on themselves and their players. Keep in mind, too, that wealthier teams tend to perform better overall. The ATR put it best:

In 2013-14 the most a team could pay a player was $12.8 million. After taxes, the take home pay from that could be as low as $5.8 million in California or as high as $7.8 million in Alberta. Is living in California worth a $2 million dollar pay cut?

These are some of the most competitive and talented athletes in the world; they may not want to sacrifice the chance to join a consistently winning team for a slightly larger income. But the average American family could look at the NHL tax situation as a comparison for their own lives to see if moving to state with low or no income taxes could make a significant difference to their daily budget.