Fans of 27 teams claim the Tampa Bay Lightning have an unfair advantage in the salary cap era due to having no state income taxes. The other five teams? The Florida Panthers, Nashville Predators, Las Vegas Golden Knights, Dallas Stars, and Seattle Kraken also have no state income taxes. But how big is the advantage?
What taxes do NHL players have to pay?
Like everyone else, NHL players have to pay federal and state income taxes. In the U.S., that’s a federal tax rate of 37% plus state taxes up to 13.3% (in California). Canadian taxes are 33% at the federal level plus provincial taxes up to 25.75% (in Quebec).
Players generally pay taxes based on where they live during the season. That’s usually the home team’s state, except players in Washington, D.C., New York, New Jersey, and Philadelphia often live across state lines.
Do NHL players pay state taxes for away games?
NHL players also generally have to pay taxes based on where their away games are. So when Nashville travels to Los Angeles, their players pay California taxes for that game.
One key exception is that American players don’t pay Canadian taxes, and Canadian players don’t pay American taxes. This is due to tax treaties. So if Seattle travels to Vancouver, their players keep their 0% home income tax for that game.
So say an American team has 41 home games, 31 away games in the U.S., and 10 away games in Canada. Roughly 51/82 of their salary is taxed at their home state rate. 31/82 is taxed at the away state rate. (The 10 Canadian games are paid to their home state as a resident of that state.)
It’s roughly, because training camps and practice days also count in the actual calculation. So the fraction for home state taxes goes up slightly, and the fraction for away state taxes goes down a little.
Why don’t NHL players want to play in Canada?
Taxes are a big reason why many NHL players don’t want to sign in Canada and put Canadian teams on their no-trade list.
Here’s the highest tax rate by province (including federal):
- Quebec (Montreal): 58.75%
- British Columbia (Vancouver): 53.5%
- Manitoba (Winnipeg): 50.4%
- Alberta (Edmonton and Calgary): 48%
- Ontario (Ottawa): 46.16%
Compare that to a high of 50.3% in the U.S. in California but with most teams under 46% with 0-9% in state taxes on top of the 37% highest federal tax bracket.
So how big of a salary cap advantage does having no state income taxes give a team?
Players on a team with no state tax will usually have to pay about 2-3% of their total salary in state taxes for away games.
Compare that to a California team (Los Angeles, Anaheim, and San Jose), who will often get stuck paying 13.3% on all their games. For away games, a player’s home state can tax them but has to give credit for the away taxes. So away games effectively get taxed at the higher of the home or away team’s tax rate.
So no-tax teams get about a 10% tax advantage over California teams. That’s about $82.5 million on an $82.5 million salary cap. No tax teams get about a 22% tax advantage over Quebec or about $18.15 millon on an $85 million cap.
That works out to 2 star players compared to Canadian teams, 1 star player compared to high-tax U.S. teams, and 1 mid-roster player compared to lower-tax U.S. teams.
NHL Effective Tax Rate by Team
Here’s how things will look for the 2022-2023 season for the American teams.
|Team||State Tax Rate||Salary Cap x Tax Rate|
- Uses the highest marginal rate for the state the team is in. Does not account for lower tax brackets or deductions.
- When teams are away, they pay the higher of the away team’s rate or their own rate.
- The average rate below is based on the team’s actual 2022-2023 home and away schedule.
- Home games get a little extra weight (55%) over away (45%) to roughly account for training and other non-game day duties performed by players.
- Away games at Canadian teams are taxed at the U.S. team’s home rate due to tax treaties.
- Canadian teams weren’t included because they don’t pay U.S. state taxes. Leave a comment if you want to see a breakdown of provincial taxes in the next update.
Do NHL players actually consider taxes when signing?
You have to believe that smart NHL players are calculating taxes when signing contracts. GMs of low-tax teams will also be showing them the numbers and why their offer is better, even if the high-tax team offers a little more.
Of course, players often have to take into account the fact that they might get traded before taking a lower salary based on tax savings. That’s where negotiating no-trade and no-movement clauses come into play.
Players also have personal preferences about where they want to live or what teams they want to play for. Their choices may also be limited by team needs.
Will the NHL change the salary cap rules?
No sport that I’m aware of takes local taxes into account when calculating their salary cap. It’s also something that was never really a discussion in the NHL since the “traditional market” teams usually have higher taxes. With the rise of several non-“traditional market teams” and Tampa’s $18 million over the cap Cup*, it’s certainly something fans will complain about.