With just over a month to go before NHL free agency, there is a potentially worrisome trend on the rise: players choosing their new destinations based on which state has favorable tax rates.
When Major League Baseball pitcher Corbin Burnes signed with the Arizona Diamondbacks in free agency last winter, it was a mild surprise. Burnes specifically mentioned the state of Arizona’s low income tax rate as a factor. His $210 million contract has more value in Arizona than it would if he had signed in a high tax state such as New York, Massachusetts or California.
Could this be a growing trend in sports of players choosing their free agent destination based on tax burden? Players like Burnes are still more economically savvy pioneers instead of the norm though it’s becoming an increasing concern. Kelsey Surmacz, who covers the Pittsburgh Penguins for The Hockey News, expressed concern that it might affect the potential highly anticipated free agency of Mitch Marner.
Currently there are six United States states without an income tax and six NHL teams in total located between them. Some of those teams (the Florida Panthers, Tampa Bay Lightning, Vegas Golden Knights and Dallas Stars) are seen as consistent Stanely Cup contenders. Mikko Rantanen’s contract extension antics caused in season drama this year before landing with the Stars. He was likely more motivated by Dallas’s cup aspirations and his Finnish compatriots, but the tax benefit was something the Colorado Avalanche or the Carolina Hurricanes couldn’t offer.
One of the teams in an income tax-less state is rather interesting with the Seattle Kraken. The team is in its infancy and is building a team in opposite fashion of their expansion brethren the Golden Knights. The Kraken have preached patience since day one as they build the “right” and “traditional” way. When it comes time to contend, it become time to add free agents to finish off building a roster. When that day comes, the Kraken might have an edge up few other teams do. For the record, the sixth team in a income tax-less state is the Nashville Predators in Tennessee.
Surmacz expressed concern about the trend it might start in her post about Marner. She might have a point, as state taxation is something entirely out of league control and can lead to a back door way of salary cap circumvention. Remember, it’s a player’s actual salary that goes against the salary cap. Depending on taxes their actual take home pay afterwards can vary from state to state.
Could the NHL add regulations to the cap to try to fight back? For one, the every powerful players union is sure to hit back with full force. Second, the hypothetical details on how that would implemented might drive even the most seasoned capologists insane just thinking about it.
From the players and league perspective, anything that encourages teams to spend money is good. That’s why the league has a salary floor and has been able to avoid a notoriously bad on ice product from “tanking” teams unlike their MLB brethren. Case in point is the Golden Knights. It was their desire to win, and not friendly state tax laws, that have lead them to spending like drunken sailors since entering the league, but it has produced incredible winning results.
That put another interesting thought in the back of our heads. Does this mean that expansion teams in non-income tax states have an advantage over others? The NHL has long avoided expansion into Canada over economic conditions but those are mostly rooted in currency differences between the United States and Canadian dollar.
Have they ever considered the tax burden? Houston, Texas always comes up as a likely market for United States expansion and they’re conveniently located in a state without income tax (an immediate look at the other states didn’t have any markets that popped out or had credibly sought an NHL franchise).
For the record, that doesn’t mean a player is completely free and clear of tax obligations. There’s still federal taxes, state property tax, sales tax, and so on. Some states have a rather complicated rule colloquially called the “jock tax” for players earning money in their state that don’t live in their state. In theory, this applies to players who play in different locations when they reside and can include something as single as their pay check for playing in a road game.
The NHL always finds itself in the economic and international cross hairs. That’s because it has the unique distinction of having almost a third of its member clubs north of the border. The players on those teams might seek sunnier shores with more lax tax laws, and the NHL might have to start worrying about it.