How the Florida State Tax Rate Helped turn the Tampa Bay Lightning into a Juggernaut
Earlier this month, the Tampa Bay Lightning, a team who had decimated the rest of the NHL in 2018-19 with the best regular season in over 20 years, managed to re-sign their young centreman Brayden Point to a three-year contract worth $6.75 million per season. As soon as the deal was signed, there were cries of disbelief and anger from the fans of 30 other teams around the league. “How were the Lightning able to sign Point for such a low number? Why were they able to continuously retain their star players on discounts? They can’t keep getting away with this!” The reality is, Tampa Bay, as well as other franchises like Florida, Dallas, Nashville, Vegas, and soon Seattle, all benefit from having an extra negotiating tool in their back pocket.
Income tax rates, both in Canada and the United States, vary for each team based on the jurisdiction where players are located. This applies to all of the big four North American sports, but this advantage is more prominent in hockey due to the fact that NHL franchises operate under a salary cap, forcing general managers to be more aware of how much they spend to acquire a player’s services. Those teams in states like Florida, Nevada, Tennessee or Texas are able to use the flexibility of not having a state tax to offer a lower cap hit while maintaining the same take home salary. Essentially, teams like Tampa Bay can offer players a lower cap hit that would be equivalent to a player earning a high cap hit in Canada or US state with a high tax rate.
In Canada, federal taxes are measured through tiers, with the tax rate being determined based on how much annual income you earn per year. With the minimum salary in the NHL being $700,000 USD, this would mean players on a team located in Canada face a 33 percent tax rate, which is the rate for any income over $205,842. Also like the U.S., players in Canada then have to pay provincial taxes in segments. Therefore, the average player on the Toronto Maple Leafs, in addition to paying federal taxes, have to pay a provincial tax rate of 5.05% on the first $43,906 of taxable income, then 9.15% on the next $43,907, 11.16% on the next $62,187, 12.16% on the next $70,000, and finally 13.16% on the amount over $220,000.
The United States can get quite complicated, as some cities like New York City and Philadelphia, include resident taxes of up to 3.89%. Players in the States may also face something known as a jock tax, which is really a non-resident tax specifically designed for workers visiting other cities. This is prevalent with athletes taxed for work which they earn from income in another jurisdiction, with the state typically using “duty days” to account for game days, practice days and sometimes even travel days in the city and state of where they are performing their work. Canada does not have a jock tax of any kind, but a tax treaty has been put in place to ensure that players on Canadian teams who are American residents, and vice-versa, are not doubly taxed.
To provide another representation of just how damaging the tax rate can be on a player, let’s compare two players with the same base salary of $10 million in 2018-19, Brent Burns of the San Jose Sharks (California) and P.K. Subban of the Nashville Predators (Tennessee). Burns’ cumulative tax rate is 51.02%, with California’s state tax rate of 13.3% being the highest of any American state. Along with applicable jock taxes, his final payout is $4.898 million. Subban meanwhile, paid zero state taxes playing for Nashville with a rate of 36.66%, and ended up taking home $6.334 million. Therefore, even though they get the same salary on paper, Subban still ended up making $1.436 million more in net income last season, simply based on where the team he was playing for was located.
Bringing it back to Tampa Bay, the Florida tax rate has helped them retain stars like Brayden Point, Nikita Kucherov, Steven Stamkos and Victor Hedman because they’re still making as much as their rivals in the end. To bring it back to Point, on a total income of $6.75 million with a tax rate of 39.13%, he still comes away with a net income $4.1 million. Mitch Marner on the other hand, to which the Toronto Maple Leafs just inked a massive deal that pays him $10.893 million per year, has to pay a tax rate of 53.35%, leaving his average net income at $5.8 million. A $4 million+ perceived gap in salary is suddenly reduced to a difference of just $1.7 million in net income.
Of course, a beneficial tax rate isn’t everything at the end of the day. It hasn’t stopped teams like the Florida Panthers or Dallas Stars from handing out some of the most lucrative contracts in NHL history to make sure they keep high-end talent, like Sergei Bobrovsky’s seven-year, $70 million deal, or Tyler Seguin’s eight-year, $78.8 million contract. But when you get a team like the Tampa Bay Lightning, who have developed a winning culture and proven themselves to be a Cup contender, players already want to go there. The “no state tax advantage” is the kicker that seals the deal, and for the Lightning, it creates the perfect storm.