Should the NHL salary cap adjust for local income tax?

[ole ole]

The problem is the tax rates can change at any time, whereas NHL contracts last up to 8 years. You could set a different conversion rate per team every year, but that sounds like an accounting and legal nightmare for the teams. The tax laws are also so complicated and full of loopholes that I'm not even sure how one could create a sound legal framework for that type of contract.

People also can have wildly different personal tax situations. A player making minimum salary is going to have a smaller tax rate than a $10M player. Some players might have huge deductions, then what? They may be incentivized to sign in places with high tax rates if they can take advantage of deductions to net more than they would elsewhere. There are ramifications for things like mortgages, donations to charity, or side businesses/investments.

I think you'd just end up where players prefer still certain markets, just different markets and for different reasons, and having added a ****load of complexity and legal exposure to how the league is run.

tl;dr - Sounds good, doesn't work.

No it can be done quite easily. If the salary cap is 80 mil than make that cap 80 mil +taxes.

 

[mouser]

I took Ovechkin as an example because his salary is a nice round $10M, and I am sure that this calculator is an oversimplification but it gives a rough idea:
Alex Ovechkin Post-Tax Earnings - CapFriendly - NHL Salary Caps

Florida / Dallas / Nashville have the lowest combined rate at 39.16%, Toronto / Montreal / Ottawa are listed as the highest around 53.1%, about a 14% difference.

This dated study shows which teams have the most preferential taxation rates:

https://www.taxpayer.com/media/CTF-HomeIceDisadvantage.pdf

It’s also an oversimplification prone to all sorts of errors when applied to an individual player’s effective tax rates.

Ovechkin could probably pay a lower effective tax rate playing in Toronto then he would in Washington. So long as he’s planning to retire back to Russia after his career. There are tax/retirement tricks he could take advantage of to significantly reduce his effective tax rate in Canada.

 

[bukwas]

Without financial benefit to the owners, forget about it.

 

[Rorschach]

I'm sure the players all live in Delaware anyway.

My Chinese boss lived in Shenzhen, our office was in LA, but our company was based in Delaware.

 

[Spazkat]

I took Ovechkin as an example because his salary is a nice round $10M, and I am sure that this calculator is an oversimplification but it gives a rough idea:
Alex Ovechkin Post-Tax Earnings - CapFriendly - NHL Salary Caps

Florida / Dallas / Nashville have the lowest combined rate at 39.16%, Toronto / Montreal / Ottawa are listed as the highest around 53.1%, about a 14% difference.

This dated study shows which teams have the most preferential taxation rates:

https://www.taxpayer.com/media/CTF-HomeIceDisadvantage.pdf

So according to the rankings in that 2nd article you linked Calgary Edmonton and Florida have the lowest taxation rates and um.... 8 teams have higher rates than TO. Highest rates are Habs, then the 3 Cali teams, then (in descending order) NYR, MIN, WSH, NJD then Toronto. For that matter it shows Columbus within .3% of Toronto and Ottawa for taxes.

So why is it that even with those super low tax rates Calgary and Edmonton are not free agent meccas, and Kings/Ducks/Sharks/Rangers/Wild have no apparent issues with signing/retaining players at all?

 

[Joe Sakic]

From an economic perspective it certainly makes a lot of sense.

You know that every agent is demonstrating real dollars received to players when they are deciding between multiple contract offers. Teams that live in areas with higher income tax will simply have a harder time recruiting Free Agents.

 

[NORiculous]

So according to the rankings in that 2nd article you linked Calgary Edmonton and Florida have the lowest taxation rates and um.... 8 teams have higher rates than TO. Highest rates are Habs, then the 3 Cali teams, then (in descending order) NYR, MIN, WSH, NJD then Toronto. For that matter it shows Columbus within .3% of Toronto and Ottawa for taxes.

So why is it that even with those super low tax rates Calgary and Edmonton are not free agent meccas, and Kings/Ducks/Sharks/Rangers/Wild have no apparent issues with signing/retaining players at all?

Good question. Cause its cold? lol

 

[ElLeetch]

What if the point of the cap is to ensure the owners had cost certainty so that players could only be paid a set %?

Thank you. So few people realize this.

 

[DaPhazz]

No. Who gives a crap if one dude with millions pays slightly more then another in taxes. The cap is to make sure the teams can survive it is not about making sure every player is paid the same

You missed the point

 

[DaPhazz]

No, certain markets will always have certain advantages or disadvantages. That’s just part of it. It’ll never be perfectly fair.

I see your point, but there a difference between not being perfectly fair and being factually unfair.

The cap should be based on after tax revenues. One league, same rules for everyone.

 

[slybel]

Ain't there only a 5 to 8% income tax difference from say Ontario/Quebec to US states (IRS taxes @37%) ? If player is paid in USD of course.

 

[Stuzchuk]

I've been a proponent of this for years. Make the cap a post tax cap. Teams in high tax markets spend more of their cap space to compensate. It's an imbalance.

Player and team agree to an amount made after taxes (but not including union dues, etc). That number is the same in any market. If the player moves, the new team doles out whatever it takes in that market to meet the number.

There was a time when players in Canada were paid in Canadian funds while players in the US were paid in US dollars. That changed. This should change too.

that... thank you sir for a well described post

Ain't there only a 5 to 8% income tax difference from say Ontario/Quebec to US states (IRS taxes @37%) ? If player is paid in USD of course.

nope...
Post-Tax Earnings Calculator - CapFriendly - NHL Salary Caps

 

[Brent Burns]

Player taxes are determined by much more than simply what team they play for...

While players do have to pay a state/province tax in their home state/province, they also get taxed for "duty days" spent in each jurisdiction provided that jurisdiction doesn't have tax reciprocity with their home state or province.

For instance, if I played for the Tampa Bay Lightning but spent 6 days in California playing against the Kings, Ducks, and Sharks, I'm going to have to pay California income tax for what I made during those 10 days.

Of course, that's a very simplified account of what actually happens. But it can be complicated.

Pro Athlete Tax Returns Illustrate Complexities of U.S. Tax Code

Oh interesting, had no idea that’s how it worked

 

[CertifiedPublicGuin]

Regional or Federal tax structure should have no bearing whatsoever on the salary cap of the NHL.

Cost of living on the other hand, somebody could make a case for. If I work in New York, NY, I get paid a lot more to do the same thing I would do if I lived in Manitowoc, WI. Generally these guys are making multiple millions of dollars per year, so for the most part they can afford to live almost any lifestyle they choose, but you get the point.

 

[Brent Burns]

that... thank you sir for a well described post


nope...
Post-Tax Earnings Calculator - CapFriendly - NHL Salary Caps

This is the perfect tool to illustrate the variance in salary

 

[Ducks in a row]

There are different kind of taxes from income taxes to sales taxes. Tax rates can be changed they don't remain the same forever. Having people working on figuring out what each teams cap should be every year based on taxes is just stupid.

There are other things that can affect a players signing with a team like schooling system for the players children if they have any,weather,crime rates and so on. Either you need to find a way to adjust for everything that can effect a players signing choice or don't adjust anything.

The way it is now is the way it should remain.

 

[DownIsTheNewUp]

As if the cap system isn't complex enough as it is, now let's just throw in thousands of pages of state and local tax code. And at that point, since we don't know what each player will take in deductions, etc, we can't calculate their cap hit until they file their tax return the following year. Brilliant.

 

[tucker3434]

I see your point, but there a difference between not being perfectly fair and being factually unfair.

The cap should be based on after tax revenues. One league, same rules for everyone.

It is one set of rules right now. And that set of rules is similar to those used for the other major sports leagues.

Trying to adjust it for tax or cost of living would be a nightmare. So the cap is based on post tax dollars, how do trades work? Any player that didn’t initially sign in a high tax area is now more of a bargain to a high tax team. And if you’re thinking of doing contracts in post-tax dollars, good luck. The lawyers would definitely never go for that.

 

[CanadienShark]

No. Should the also account for different costs, such as average housing, food, etc. type costs?

 

[Stuzchuk]

Regional or Federal tax structure should have no bearing whatsoever on the salary cap of the NHL.

Cost of living on the other hand, somebody could make a case for. If I work in New York, NY, I get paid a lot more to do the same thing I would do if I lived in Manitowoc, WI. Generally these guys are making multiple millions of dollars per year, so for the most part they can afford to live almost any lifestyle they choose, but you get the point.

not entirely true... if you look at Buffalo vs NYC, there's a huge gap and and taxes are identical... but I do agree with you that they're all millionaires and can afford to live where ever they want in these locations... but at the end of the day, they can save quite a few bucks by moving from Montreal to Nashville... **cough cough**

RNK​	CITY​	HOST​	DIV​	INDEX​
1	New York City (United States)	Isles / Rangers	E-MET	229
2	Washington D.C. (United States)	Caps	E-MET	215
3	San Jose, California (United States)	Sharks	W-PAC	201
4	Boston, Massachusetts (United States)	Bruins	E-ATL	200
5	Los Angeles, California (United States)	Kings / Ducks	W-PAC	192
6	Jersey City, New Jersey (United States)	Devils	E-MET	190
7	Chicago, Illinois (United States)	Hawks	W-CEN	187
8	Miami, Florida (United States)	Panthers	E-ATL	175
9	Toronto (Canada)	Leafs	E-ATL	172
10	Vancouver (Canada)	Canucks	W-PAC	171
11	Denver, Colorado (United States)	Avs	W-CEN	170
12	Philadelphia, Pennsylvania (United States)	Flyers	E-MET	169
13	Minneapolis - St. Paul, Minnesota (United States)	Wild	W-CEN	162
14	Dallas, Texas (United States)	Stars	W-CEN	160
15	Nashville, Tennessee (United States)	Preds	W-CEN	158
16	Calgary (Canada)	Flames	W-PAC	154
17	Pittsburgh, Pennsylvania (United States)	Pens	E-MET	153
18	Ottawa (Canada)	Sens	E-ATL	151
19	Edmonton (Canada)	Oilers	W-PAC	149
20	Las Vegas, Nevada (United States)	Knights	W-PAC	146
21	Phoenix, Arizona (United States)	Coyotes	W-PAC	142
22	Tampa, Florida (United States)	Lightning	E-ATL	141
23	Raleigh, North Carolina (United States)	Hurricanes	E-MET	140
24	Winnipeg (Canada)	Jets	W-CEN	140
25	St. Louis, Missouri (United States)	Blues	W-CEN	139
26	Montreal (Canada)	Habs	E-ATL	135
27	Columbus, Ohio (United States)	Jackets	E-MET	132
28	Detroit, Michigan (United States)	Wings	E-ATL	127
29	Rochester, New York (United States)	Sabres	E-ATL	127

[TBODY] [/TBODY]

Cost of Living Ranking in North America (USA and Canada). Updated Jun 2018

 

[DownIsTheNewUp]

All this talk of fairness, why stop at taxes? Don't certain markets have an advantage in being able to produce more endorsement deals? Remember when Toronto tried to entice Stamkos with endorsement deals? Didn't they have some Canadian tire guy actually in the meeting, lol. Oh that's right people only care about fairness when it benefits them.

The fact is each market is different. Weather, taxes, living expenses, endorsements, media pressure, coaching staff. A lot of things play into a players decision about where to play and several of the things I listed directly effect how much money he has in his pocket at the end of the day. To single out one thing to say that's a fairness issue is just silly.

 

[wej20]

No. Should the also account for different costs, such as average housing, food, etc. type costs?

And weather? and all sorts of other factors that go into choosing where a free agent signs.

 

[DudeWhereIsMakar]

Chicago only wishes this happened...

 

[ThatGuy22]

I just wonder why this conversation around inequality of payment based on jurisdiction never mentions the the advantage of increased buying power that players getting paid in US dollars living in Canada have...

Probably not as convenient for certain fanbases I suppose.

 

[Dustin]

How many people actually believe the cap is there for parity? It's there for cost control and cost control only. Any other benefit is very much secondary.