On Wednesday, October 7, 2015, the National Hockey League will kick off its season with a handful of games including what many consider the main attraction: Toronto Maple Leafs vs. Montreal Canadiens. The matchup, one of the greatest rivalries in league history, is focused on two Canadian teams. That's not surprising considering that a whopping 68.7% of NHL players are Canadian. Just 14.8% are from the United States.
According to the NHL, more than 33% of NHL players hail from outside North America from 14 nations. Last season there were 71 NHL players from the Czech Republic, 64 players from Russia, 50 from Sweden, 38 from Finland, 25 from Slovakia, six from Germany, five from Latvia, four from Ukraine, three from the United Kingdom, two from Poland, two from Lithuania, and one each from Belarus, Norway, and Switzerland. It's a truly international league. In contrast, just 2% of active players in the National Football League hail outside of the fifty states (NFL Report downloads as a pdf).
With teams located in Canada and in the United States, high performing hockey players may be able to negotiate their tax home with their team home in order to choose a more favorable tax result. That is, according to a new report released jointly by the Canadian Taxpayers Federation (CTF) and Americans for Tax Reform (ATR), exactly what's happening.
According to the report, 54% of the 116 Unrestricted Free Agents (UFA) and 60% of players with no-trade clauses who changed teams picked teams with lower taxes. That, according to Grover Norquist, president of Americans for Tax Reform, is telling. Norquist says, "Successful hockey players can choose their team in free agency and thus, their hometown for tax purposes. So can millions of Americans and Canadians who move from high tax areas to low tax areas. Better than any poll, this tells us what taxpayers want: Lower taxes and less government."
I don't know if it actually speaks to less government but taxes are clearly part of the economic equation that most workers - including professional athletes - take into consideration when making career choices. That doesn't mean that taxes always control the decision but when flexibility allows, taxes matter.
As part of the report, analysts examined income taxes and payroll taxes of NHL players (stripping away tax preference items so as to have an apples to apples comparison). To further keep matters simple, to figure the
Here's what the report found. Not surprisingly, American teams with no state income tax have the lowest total tax rates in the NHL (a tax shift in Alberta resulted in those teams having a higher rate than the lowest American teams for the upcoming season). That means that for 2015, the Dallas Stars (Texas), Florida Panthers (Florida), Nashville Predators (Tennessee) and Tampa Bay Lightning (Florida) have the lowest over all tax burdens for players at 40.6%.
The most expensive place to be an NHL player in the U.S. is in California with the Anaheim Ducks, Los Angeles Kings and San Jose Sharks topping out at a whopping 53.1% total tax rate. Those teams don't have the highest overall burden, however. That honor belongs to the Montreal Canadiens with a total tax rate of 54.2%.
The difference between a high tax team and a low tax team can mean tens of thousands to hundreds of thousands of dollars in taxes. Practically speaking, that means that when given the chance (and hockey gods being equal), a majority of players should want to seek out no-trade contract clauses to avoid being sent to high tax jurisdictions. According to the report, Winnipeg defenseman Tyler Myers saved nearly a half million dollars when he left the Buffalo Sabres for the Jets. Center Marc Savard benefited as well, saving $360,268 with a move from Boston Bruins to the Florida Panthers.
When it comes to UFAs, 54% of those who changed teams picked teams with lower taxes. The best example? Right winger Jaromir Jagr who will pay nearly a half million dollars less in taxes playing for the Florida Panthers than he would playing for the New Jersey Devils. Center Artem Anisimov will save $392,322 after moving from the Columbus Blue Jackets to the Chicago Blackhawks.
Overall, players moving to lower-tax jurisdictions will save more than $4 million.
Realistically, this means that players earning the same salary will have take more or less take home pay, depending on state and local tax rates. That said, as with any other job, all things aren't always equal. Salaries are often adjusted upwards in places like New York City to accommodate a higher cost of living and, of course, skill levels and audience draws also figure into the equation.
And no, the intention isn't to skim over skill levels in this discussion. That bit is indeed important. Just as you and I are limited in our ability to negotiate our salaries depending on how valuable we are to our employers, so are professional athletes. The inclusion of no-trade clauses and other controls over employment are tied to perceived value: the goaltender who blocks more shots likely has more control over his contract than a mediocre tender just as the CEO of a multinational corporation has more sway over the terms of his or her contract than does an entry level worker.
So why wouldn't states and localities adjust their tax rates to attract the best talent overall - from professional athletes to tech gurus? Money. Taxes paid by NHL players do a lot for the local, state and federal economies. Last season, NHL players paid an estimated $891 million in tax (that's just in player salaries, not counting support staff, ticket sales and merchandising). At the top of the heap were the New York Rangers who paid a league-high $41.8 million. The Arizona Coyotes paid the least in taxes, just $39.2 million, a combination of lower taxes and low salaries.
Of course, NHL players with tax and other homes outside of the U.S. may still be subject to taxes in both places. Typically, the U.S. imposes a tax on worldwide income which means that ventures and income earned outside of the country (including image and other licensing rights) are still reportable and potentially still taxable in the U.S. For those international players, especially Canadians playing in the U.S., credits, treaty treatment and other tax breaks may be available to offset those obligations.
You can read the full report here.
