An idea to remove the cap advantage for no tax states

[admiralcadillac]

The impact has more to do with education than an actual financial (this changes my life in a fundamental way) impact. You've got sports bros talking about state income taxes and guys that barely graduated high school latching on to it as if single digit percentage points in any meaningful way makes you less of a multi-millionaire.

State and Local Tax Burdens, Calendar Year 2022

Tax burdens rose across the country as pandemic-era economic changes caused taxable income, activities, and property values to rise faster than net national product. Tax burdens in 2020, 2021, and 2022 are all higher than in any other year since 1978.

taxfoundation.org

View attachment 895241

Neat, they also only play 42 games at home per year. I know the differences aren't massive, but gm's are saying it has impact, so maybe even small percentage differences have an impact all the same...

Saying the difference isn't massive is also not the point.

 

[PenguinSuitedUp]

Would take three minutes before stock brokers counted as "athletes."

Hey, if a NASCAR driver is an athlete, everyone is an athlete.

 

[Golden_Jet]

Hey, if a NASCAR driver is an athlete, everyone is an athlete.

Their hearts run at 120-150 bpm for 3-4 hours.

 

[CDN24]

I will confess that I have only read parts of this thread. I popped in and out of it and assuming that the tax differences are something that the league and the PA Want to fix, I think this is an idea that might work.

My idea is obviously introduction of something I call the Location Adjustment Factor (LAF). Each team would be assigned an LAF based on taxes in the region and possibly other factors. Essentially an LAF is a positive or negative modifier that affects the actual money paid to a player. LAFs would be reviewed each year by the NHL and the NHLPA to see if any modifications are needed and announced when the cap is announced. For our examples, we're going to assume that Toronto has a LAF of +5% and Tampa Bay has a LAF of -5%. These are likely nowhere near what the real numbers would be, but they'll work for demonstration purposes.

Next, we need to talk about contract dollars and real dollars. Contract dollars are the amounts in a players contract. These are the values used to determine cap hits and so forth. Real dollars are are the amounts that a team actually pays to the player. Currently contract dollars and real dollars are exactly the same thing. My LAF idea change that.

Contract would still be negotiated and registered using contract dollars, but with the full knowledge that the real dollars paid out would be modified by LAFs. For example, a players signs a new 4 year deal with Toronto that pays them an AAV of $10M a year ($12M, $11M, $9M, $8M) with no signing bonuses, that would be a cap hit of $10M and nothing changes in regards to how the cap plays out.

However in terms of the real dollars paid to the, the LAF would modify that. Instead of the $12M first season salary listed in the contract, he would receive actually be paid $12.6M because of Toronto's +5% LFA. If the player had signed the same deal in Tampa Bay, they would only be paid $11.4M due to TB's LAF of -5%.

Now, taxes for signing bonuses are based on where they live not where they play, so they might be a little trickier. My thought right now s the NHL and PA would need LFAs for all the areas outside NHL markets that NHLers live. Any player with a signing bonus n their contract would receive a payment in real dollars based on the LFA of where they live.

So, let's assume that our sample player is contracted to receive $10M of his first year $12M salary as a signing bonus. If he lived in Toronto, he would actually be paid $10.5M in real dollars; if he lived in area with an LAF of -3%, he would get $9.7M. In either case. He would be paid $2.1M the house in real dollars for the $2M in contract dollars he is set to earn for the rest of the season based on Toronto's LAF.

Forgive me if this gets long, there is a solution that would solve the tax inequities across jurisdictions and have everyone pay the same tax. It would probably require changes to the Canadian Income Tax Act, US tax code and tax treaty so not likely to occur but it would work.

Its based on how the various Canadian provinces currently tax self employed professional services income. Assume I am a partner in a Canadian law firm with Offices in Ottawa, Toronto, Vancouver, Winnipeg, Edm, Calgary and Montreal. I am a partner in the Ottawa Office. I am taxed on my share of the firms profits. I work in Ottawa, on Ottawa based clients only but provincially I pay taxes in every province we have an office despite not working there or on any of their clients. Assume My share of the profits is $100,000. 25% of firms revenues come from Ontario, 30% in Alberta, and 15% each in BC, Manitoba and Quebec. I am taxed on 25% of my 100K in Ontario or 25,000. 15% or 15,000 in Qc and so on.

This model could be adapted to the NHL or any pro spots league. Players salaries would be paid by the team to a Master players salary partnership (this becomes the partnerships revenue) The partnership in turn pays the players. The players are taxed based on where the partnership earns its revenue from. Lets say total salaries are 2.5 billion, close to 80M per team. Lets say Toronto is at 85M and Ottawa is at 75M. Both Fla teams are at 85M and so on. Every player would be taxed the same. Every player in the league would pay taxes on 6.4% (85+75)/2500 of their salary in Ontario, and 6.8% or (85+85)/2500 in Fla. Player total taxes would be independent of what team they played on, and each jurisdiction would be collecting taxes from every player that total the salary base of the teams in their jurisdiction. All salary would be paid as salary (avoiding the other inequity of rich teams using signing bonuses)

This could even make escrow easier as that money could stay in the partnership.

Edit, in this proposal each jursdiction will collect tax on the salaries paid in their jurisdiction. then if you are looking for the provincial/state gov't to kick in funding for your new arena they might as they are assured of the tax dollars. Current situation is such that tax is not always collected in the jurisdiction where the player is playing. take matthews as an example his bonus structure means that the fed gov in canada gets a bit the lump sum withholding on bonus but Ont gets next to nothing as they only get to tax about 1/2 of his base salary that is league minimum.

 

[Essenege]

crabs in a bucket mentality. why not advocate your province/state to lower their taxes for millionaires?

Crabs in a bucket mentality lol. Teams like Leafs and Habs basically fund small market team like Panthers. They don’t survive without revenue sharing and the Canadian TV deal. This is the real “crabs in a bucket” situation.

 

[JPT]

Their hearts run at 120-150 bpm for 3-4 hours.

Those cars aren't exactly easy on the body to drive either. And no air conditioning. I think once you sweat a certain amount you can go ahead and call yourself an athlete.

 

[PenguinSuitedUp]

Their hearts run at 120-150 bpm for 3-4 hours.

Sounds like they need to do more cardio.

 

[BigBadBruins7708]

Sounds like they need to do more cardio.

A race is 4 hours of cardio and exertion, they fight the car to keep it on track it. On average they lose 10lbs of water weight per race.

 

[Essenege]

No, we should not reward areas with high taxes because of poor governmental decisions. Just like high taxes pushes away business from your city is the same logic that should be applied with star players avoiding high tax areas.

We should not reward teams like the Panthers who generates nowhere near the revenues high taxes market like Leafs/Habs/Panthers do.

LMAO at those “free market” arguments in this thread, the salary cap system and revenue sharing is the god damn opposite of a free market.

Without the cap in 2004 Rangers and Wings were spending 77M, Nashville/Atlanta/Panthers between 23 and 27

 

[Mirka the Turka]

We should not reward teams like the Panthers who generates nowhere near the revenues high taxes market like Leafs/Habs/Panthers do.

LMAO at those “free market” arguments in this thread, the salary cap system and revenue sharing is the god damn opposite of a free market.

Without the cap in 2004 Rangers and Wings were spending 77M, Nashville/Atlanta/Panthers between 23 and 27

Well its quite sad that the teams that generate that much money and get all the advantages of paying surrounding staff much better remain complete failure success wise like the Habs and Leafs

So lets stop the victim mentality of blaming states with better political policies for their success at sports.

 

[Golden_Jet]

We should not reward teams like the Panthers who generates nowhere near the revenues high taxes market like Leafs/Habs/Panthers do.

Lol

 

[Hockey Outsider]

I will confess that I have only read parts of this thread. I popped in and out of it and assuming that the tax differences are something that the league and the PA Want to fix, I think this is an idea that might work.

My idea is obviously introduction of something I call the Location Adjustment Factor (LAF). Each team would be assigned an LAF based on taxes in the region and possibly other factors. Essentially an LAF is a positive or negative modifier that affects the actual money paid to a player. LAFs would be reviewed each year by the NHL and the NHLPA to see if any modifications are needed and announced when the cap is announced. For our examples, we're going to assume that Toronto has a LAF of +5% and Tampa Bay has a LAF of -5%. These are likely nowhere near what the real numbers would be, but they'll work for demonstration purposes.

Next, we need to talk about contract dollars and real dollars. Contract dollars are the amounts in a players contract. These are the values used to determine cap hits and so forth. Real dollars are are the amounts that a team actually pays to the player. Currently contract dollars and real dollars are exactly the same thing. My LAF idea change that.

Contract would still be negotiated and registered using contract dollars, but with the full knowledge that the real dollars paid out would be modified by LAFs. For example, a players signs a new 4 year deal with Toronto that pays them an AAV of $10M a year ($12M, $11M, $9M, $8M) with no signing bonuses, that would be a cap hit of $10M and nothing changes in regards to how the cap plays out.

However in terms of the real dollars paid to the, the LAF would modify that. Instead of the $12M first season salary listed in the contract, he would receive actually be paid $12.6M because of Toronto's +5% LFA. If the player had signed the same deal in Tampa Bay, they would only be paid $11.4M due to TB's LAF of -5%.

Now, taxes for signing bonuses are based on where they live not where they play, so they might be a little trickier. My thought right now s the NHL and PA would need LFAs for all the areas outside NHL markets that NHLers live. Any player with a signing bonus n their contract would receive a payment in real dollars based on the LFA of where they live.

So, let's assume that our sample player is contracted to receive $10M of his first year $12M salary as a signing bonus. If he lived in Toronto, he would actually be paid $10.5M in real dollars; if he lived in area with an LAF of -3%, he would get $9.7M. In either case. He would be paid $2.1M the house in real dollars for the $2M in contract dollars he is set to earn for the rest of the season based on Toronto's LAF.

I understand what you're trying to do here, but in practice, this won't work, because players can structure their affairs in such a way that most of their income is taxed in a jurisdiction, other than the province or state where they're playing. (And even if that doesn't happen, "jock taxes" automatically normalize the variation in tax rates from one jurisdiction to another - not fully of course, but it can't be ignored either).

For example, it appears likely that the substantial majority of Matthews' income is taxed in Arizona (despite him playing in Ontario). You can check my post history for several comments on how that works. But, if the Leafs get a location adjustment, they would actually have their cap space over-inflated, because Matthews is already paying tax at a lower rate than, say, Marner, despite them having similar incomes.

The response to this might be - these types of issues can be accounted for. And that's true. But an after-tax cap (or a location adjustment) will never happen for two reasons.

First, in order to calculate it accurately, the NHL would need confidential information about the players (and, specifically, how their affairs have been structured for income tax purposes). Their salaries are public, but there's no way the NHLPA would consent to releasing highly sensitive information about their members.

Second, I would estimate that it would cost roughly $1M in accounting/legal fees to do this type of analysis. The league would need to engage an accounting or law firm that specialized in cross-border taxation issues - this is a specialized skillset. It's inconceivable that the 32 owners would consent to spending that much money on something that doesn't add any value to league.

 

[North Cole]

The funny thing with escrow is that if the league has a great year, they actually get more money back than was withheld. The whole thing is wrapped up in emotions and knee-jerk reactions rather than measured responses to what's actually going on.

They would, but there's functionally no way for the league to do that well, since the HRR is the midpoint and everyone is capped out. They'd need surplus rev in the hundreds of millions to have escrow pay back to players. Probably not likely when the big rev is already locked in and forecasted based on TV contracts.

 

[JPT]

I think it would be wise to say that countries and/or states with high tax rates haven't truly found the same level of success economically with those with lowered tax burdens. It appears that the middle class thrives better economically in those situation which, in turn, creates better economic opportunities for those living in those nations. The policies of certain south american countries currently as well as numerous countries historically and their theories behind high taxation could be classified as insane.

Of the top five states + DC in terms of GDP per capita, four of them have the highest or among the highest income taxes in the country. All five of them have income tax.

Of the bottom five by GDP, all five have income tax among the lowest in the country.

I don't think there's much evidence to show that states with higher income tax are doing worse economically.

When there was a vote on a state income tax on TN years and years ago, a study showed that a state income tax along with a reducing in the regressive taxes already in place would mean tax *savings* for the lower and middle classes.

 

[JAK]

NHL is going to do the safe thing that won't piss off too many people by adding some limitations on the percentage of salary that can be paid as signing bonus.

But this would require CBA negotiations, and I'm not sure what the players would want for that.

 

[Mirka the Turka]

Of the top five states + DC in terms of GDP per capita, four of them have the highest or among the highest income taxes in the country. All five of them have income tax.

Of the bottom five by GDP, all five have income tax among the lowest in the country.

I don't think there's much evidence to show that states with higher income tax are doing worse economically.

When there was a vote on a state income tax on TN years and years ago, a study showed that a state income tax along with a reducing in the regressive taxes already in place would mean tax *savings* for the lower and middle classes.

GDP per capita is not an effective way to compare the tax policies of individual states. Rent and associates cost of living must be taken into account.

There is a reason many more people leave a state like California to live in Texas.

 

[rojac]

Please spend time understanding how to file tax returns with expense deductions before attempting any further form of this idea.

There's absolutely no way you can get LAF to work on hundreds of NHL players unless you controlled every aspect of their entire life a Tamagotchi. There's no way that anyone would agree to this. Maybe you could do this in the lower leagues at best, but even then, I think many may just refuse the idea. It's insanely invasive of someone's privacy.

That's not including the fact you've now introduced a far more complex bit of chaos when it comes to taxation. You'll need to understand stuff like taxable benefits, allowances, deductions, federal, state and provincial tax credits that not all players qualify for. It's a moving target every time you introduce a new factor.

Any basic idea attempting to address a "tax difference" is going to be ridiculously difficult to design to be fair and meet the intended solution, let alone implement.

Let me just say that I think any attempt to create a completely fair and perfectly balanced is patently absurd. That was not my goal here. My goal was to create a system that could reduce impact that things like taxes and cost of living could have on player decisions of where to play. I have no idea where you get the idea that I am trying to control every aspect of a player's life. I suspect a reading comprehension problem.

 

[Figgy44]

Let me just say that I think any attempt to create a completely fair and perfectly balanced is patently absurd. That was not my goal here. My goal was to create a system that could reduce impact that things like taxes and cost of living could have on player decisions of where to play. I have no idea where you get the idea that I am trying to control every aspect of a player's life. I suspect a reading comprehension problem.

I read it just fine. I don't have an issue with what you're saying. But I'm also saying that the solution will have significant issues to address to the point that it is not practical to pursue from a materiality perspective.

What I and others are saying it's nearly impossible to make cost of impact adjustments (especially if using tax as a vehicle) to reduce the impact of taxes and cost of living without controlling aspects of a players lift or request a lot of confidential information to understand a players situation to do such a normalizing calculation.

 

[mouser]

It’s a 50/50 split, so just creates escrow without at least 100% tax on the luxury tax overage.
More than a 100% tax could make a dent on the current escrow players pay.

Nope. A luxury tax isn't revenue.

 

[Golden_Jet]

Nope. A luxury tax isn't revenue.

Yes I’m aware.
Read the line above your bolded.
100% tax on the luxury overage.
If charge more than a 100% tax on luxury overage, that extra over 100% could go towards current escrow players pay.

So I’m saying if a team goes over cap by 5 million
Then a 5 million dollar tax to that team, to cover 50/50 split. (So costs team 10 million, to go over by 5 million)
The second part, was if the tax was more punitive, say $12 million total (5 for over + 7 in extra tax).
That extra 2 million coil be used towards the escrow the players are already paying.

 

[tfwnogf]

Crabs in a bucket mentality lol. Teams like Leafs and Habs basically fund small market team like Panthers. They don’t survive without revenue sharing and the Canadian TV deal. This is the real “crabs in a bucket” situation.

Who cares who funds who. It makes sense O6 teams bring in more revenue. You should be wishing smaller market teams more success so your Leafs/Habs don't have to pick up the slack.

 

[PROUD PAPA]

It would be nice if they evened the playing field, doubtful as that may be.

 

[Essenege]

Who cares who funds who. It makes sense O6 teams bring in more revenue. You should be wishing smaller market teams more success so your Leafs/Habs don't have to pick up the slack.

I only care because Habs and leafs can’t compete in free agency against a market they fund.

the salary cap should be based on net salaries, not gross.

 

[Kelevra]

It's more of a negative because the CDN teams earn revenue in CND$ and have to pay player salary in USD.

But how is the a negative from a players perspective, not the owners. The thread is stating that the low tax rates is appeal for players when signing contracts. Why is it not the same for a playing getting paid in USD and spending CDN

 

[dekelikekocur]

100% agreed, I should preface all of this by saying that I would much prefer the do-nothing scenario. But if it's a choice between trying to implement some sort of "net" Salary Cap and a tax agnostic contracting model, I think I would prefer the latter.

What type of insurance are you referring to? None of the required insurances referenced in Article 23 of the CBA seemed to be contingent on payment rates (they are all flat rate based on age/tenure or disability type):
View attachment 895176

The only insurance I could find that is dependent on pay is the group accidental death policy, but it is based on the annual base salary, not individual payment amounts:
View attachment 895179
I appreciate your feedback, am genuinely curious. The only reason I feel this is relatively doable is because my team has used similar (though not as extreme) payment models with some of our 1099s and commissioned employees (I am a COO of a mid-size company).

But you are right to call out the fact that there are complications with this (many of which I think could be avoided by only applying this model to 1 way, non-ELC contracts, maybe with some minimum AAV).

The two biggest issues I see are
(1) trades & buyouts
(2) signing bonuses

Month to month player earnings might be a bit lumpy, but since this would be for guys who are all but guaranteed to play 82 games, it shouldn't be of consequence.

• For (1) you could further improve this by setting a portion (say 10%) of the road bonuses aside as an escrow to handle any scenarios where the player isn't rostered on an NHL team for an equal proportion of his team's home and away games. Or simply cap the player at $10M of annual earnings.
• If a player is traded and owed money by the original team, that team pays a one time reconciliation to the player at the time of trade to make them whole.
• If the player is traded while they have over-earned vs expected, the acquiring team will make the initial team whole, and then cap payments to the player if they exceed their annual targeted earnings.
• If by the end of the end of the season the player is owed money (i.e. traded from a team with a home heavy schedule to a team with a home heavy remaining schedule), the acquiring team will make the player whole with an end of season bonus.

For (2) I think signing bonuses would need to be modified in a way that indicates the bonus is for the upcoming season's team road games. So a $8M signing bonus with a $2M salary ($10M AAV) would look something like:

• $1,000 per day base salary = $190k
• $44,146 per road game = $1.81M
• Pre-payment of $8M for services to be rendered:
  • TeamRoadGm1 +$195,122 for team road game in Seattle on Oct 11th
  • TeamRoadGm2 +$195,122 for team road game in Las Vegas on Oct 13th
  • TeamRoadGm3 +$195,122 for team road game in Anaheim on Oct 14th
  • ....
  • TeamRoadGm41 +$195,122 for team road game in Buffalo on April 17th

This might cause some issues with calendar year accounting (they may have to apportion the bonus over current FY road games only) and there would be some wrinkles if a player is traded. It would probably just be best to leave the signing bonus piece alone.

At the end of the day, it's much easier just to keep the status quo, but I believe what I have outlined could be easily polished to be a much better alternative than attempts to estimate a net cap or otherwise punish teams in low tax regions / reward teams in high tax regions.

Till the NHL gets sued by every taxation body for tax fraud.
Salaries are salaries because they're paid as an equal sum over x amount of payments. Where work is performed is where it's taxed, regardless of where it's paid. Ie, They don't get a paycheck in each city they visit when they do a Cali trip, they get paid on their normal pay dates that reflects taxes associated with the cities the work was performed in.