AHL Affiliates move to California Creates Unique Tax Consequence

Los Angeles Kings prospect and current Ontario Reign Forward Justin Auger will find that California’s state income taxes will take a greater percentage of his earnings now that the Kings top affiliate has moved west to California from New Hampshire

This weekend marks the start of the 80th American Hockey League (AHL) season and the first with a Pacific Division which includes five teams based in California.  Five former AHL affiliates including the Norfolk Admirals, Adirondack Flames, Oklahoma City Barons, Manchester Monarchs and Worcester Sharks have relocated to California and will make up the newly formed Pacific Division.

What are the tax implications for these players?

It has been well documented that professional athletes performing services in California face the highest tax rates.  In evaluating NHL teams, only players on the Montreal Canadiens face a higher tax burden than those who play for any of the three NHL franchises based in the state of California.  With the NHL minimal salary of $525,000 which is just slightly higher that the state’s maximum tax bracket of $519,687, NHL players marginal tax rate will be close or at the state’s maximum income tax rate of 13.3%.

The tax consequences for those AHL player’s whose affiliates are now based in California are not what would be expected.  Although California’s maximum rate is the highest in the United States, the state tax rate has 9 different income brackets that begin at 1% for income under $7,749.  Therefore the unique consequence of California’s marginal tax rate provides a surprising result for those athletes who will now be based in the golden state.

Take into consideration a player who is playing on a two-way contract with a league minimum minor league salary of $42,375.  In four of the five instances the player benefits from the move to the west coast by lowering their overall tax burden in comparison to their previous tax jurisdiction.

NHL Team

Former Affiliate

Previous State

Old Tax Liability

New Tax Liability

Difference

LA Kings

Manchester

New Hampshire

$7,621.69

$8,792.69

$1,171.00

Calgary Flames

Glens Falls

New York

$9,521.69

$8,792.69

-$729.00

Edmonton Oilers

Oklahoma City

Oklahoma

$9,257.69

$8,792.69

-$465.00

San Jose Sharks

Worcester

Massachusetts

$9,492.69

$8,792.69

-$700.00

Anaheim Mighty Ducks

Norfolk

Virginia

$9,574.69

$8,792.69

-$782.00

As the chart above indicates – only players based on the Kings affiliate, which was previously based in New Hampshire, a state with no income taxes increases their tax liability.  Surprisingly, the players earning the league minimum on the remaining four teams occur on average $699 less in tax liability.

Since not all players in the AHL earn the league minimum, I also analyzed those players who played for the league average (based on the 2012-13 opening night AHL rosters) of $88,875.  In this situation, players on teams that are now based in California all have a greater tax liability.

NHL Team

Former Affiliate

Previous State

Old Tax Liability

New Tax Liability

Difference

LA Kings

Manchester

New Hampshire

$22,337.00

$27,634.00

$5,297.00

Calgary Flames

Glens Falls

New York

$27,242.00

$27,634.00

$392.00

Edmonton Oilers

Oklahoma City

Oklahoma

$26,415.00

$27,634.00

$1,219.00

San Jose Sharks

Worcester

Massachusetts

$26,626.00

$27,634.00

$1,008.00

Anaheim Mighty Ducks

Norfolk

Virginia

$26,964.00

$27,634.00

$670.00

As the chart above indicates those players making the league average or greater are less fortunate than those who are at the league minimum.  As income increases, those players earning over the AHL League average are negatively affected, as California’s marginal tax rate causes a greater liability to perform services in that state.

CONCLUSION

The shift of five AHL teams to California has specific tax consequences to the individuals who play for these teams.  The tax consequences depend on two factors; first, their salary and second, the state from which the team transferred.  Players who, are in the farm system of the Los Angeles Kings and are making over the league average, face the greatest increase in tax liability.  As the two charts in this article show, a member of the Kings affiliate who played in Manchester last year will see an increase tax liability of $1,171 at the league minimum and $5,297 at the league average.  Therefore a player who played in Manchester last year earning $88,875 would net $66,538 compared to only $61,241 this year.

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