The Capitals are just one win away from hoisting the Stanley Cup for the first time in franchise history in the 2018 Stanley Cup finals against the Golden Knights. But with Game 5 set to be on Nevada soil, the Golden Knights are hoping they’ll be able to dig themselves out of their current series deficit. Of the 33 teams that have enjoyed a 3-1 series lead in Stanley Cup finals history, 32 have been crowned champions. While the odds are in favor of the Capitals emerging as victors, players from both teams are set to win big in state tax dollars.
The NHL and NHLPA have agreed to pay out a playoff bonus pool of $15 million for the 2018 playoffs. While some players may have clauses in their contracts regarding playoff performance bonuses, the NHL pays out a bonus pool depending on playoff results that is split between the teams. To provide a better picture of how the pool is allocated: in the 2013 playoffs, the $13 million pool distributed $2.25 million to the Stanley Cup finalists, and $3.75 million to the Stanley Cup champions. Each player receives an equal share of the pool allocated to their team. In 2013, first round losers received a $250,000 playoff bonus pool per team. With a roster of 25 players, each player received approximately $10,000.
Among the many perks of living in Las Vegas, Marc-André Fleury of the Golden Knights lives in a state with no income tax. This means Fleury will not owe income taxes on his playoff bonus or his $5.75 million annual salary in Nevada. On the other hand, the Capitals’ highest paid player, Alex Ovechkin, who lives in Virginia, will owe income tax on his reported $10 million salary (not to mention plenty more in endorsements), at the top bracket rate of 5.7 percent.
However, with respect to their playoff bonuses, both Ovechkin and Fleury will escape “jock taxes”— income taxes levied by some states on non-resident athletes. These taxes are calculated based on the number of days an athlete spends in a jock tax-administering state where they are under a duty to perform, known as “duty days.” The high earnings and high profiles of professional athletes usually mean easy revenue for states.
Of the 26 states that have major professional sports teams, 21 impose a jock tax. The jurisdictions with major professional teams without a jock tax are Nevada, Florida, Texas, Washington, and the District of Columbia. The four states do not impose a personal income tax. Although D.C. imposes an income tax at the steep rate of 8.95 percent, the U.S. Congress has prohibited the District from taxing non-residents under the Home Rule Act. While the D.C. mayor has made multiple attempts in prior years to include a jock tax in its annual budget, Congress has struck it down each time. This year, with the stage for the Stanley Cup finals set in states without a jock tax—neither Ovechkin, Fleury, nor their teammates will owe jock taxes for their performances. We may be seeing lots of toothless grins as a result.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should your state tax professional athletes through a “jock tax”?
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