Jock Tax is the Real Winner in NHL Draft

The Buffalo Sabres may have won the NHL Draft lottery however their draft selection Rasmis Dahlin was not as lucky 

Introduction

This year’s entry draft was held in Dallas, Texas.  Although there is no state income tax in Texas, players selected this past weekend will in nearly all cases be subject to it as they sign with their respective teams.  26 of the 31 NHL teams are subject to a tax within their home state and all 31 teams are subject to a non-resident state income tax also known as a jock tax.

Entry Level Compensation

Under the Current Collective Bargaining Agreement players drafted will be limited by the Entry Level Compensation Limits.  Therefore, the compensation for all players drafted in Dallas will be limited to $925,000 per season.

Although entry-level players may receive the same compensation, the unique tax consequences of their respective teams will cause the actual net value of their compensation to vary depending on not only the tax they face from their home state but the additional tax they are exposed to while on the road.

Net After Tax Value

While all athletes incur federal tax liability on their earnings, their exposure to state and local taxes will be dictated by a team’s home and road schedule.  For example, this upcoming season, a player who plays in the NHL will potentially play in 22 US jurisdictions while also playing in four additional Canadian provinces.  Therefore, by analyzing each team’s home and away schedule a player’s unique tax liability can be determined.

The top five selections in this year’s draft, provides a great diversity in tax exposure, as three of the teams are based in the US and two in Canada.  With the first overall selection, the Buffalo Sabres selected Rasmis Dahlin a slick skating Swedish defenseman.  Although Dahlin is considered to be the best player in this year’s draft he net only the third highest compensation – out of the top five – as the resident and nonresident tax he will be subjected to in Buffalo is greater than the two other US based players.

By signing a three-year entry level contract, Dahlin nets $1,408,712 after he pays federal, state and city taxes based on Buffalo’s schedule.  The two other players, selected by US teams, Andrei Svechnikov (Carolina) will net $1,495,479 and Barrett Hayton (Arizona) will net $1,520,102 since they will both reside in states with lower tax rates than Dahlin.

2018 Top Five NHL Selections

At the other end of the tax spectrum are the two selections that will play in Canada.  Jesperi Kotkaniemi, selected by Montreal with the third overall pick is the least lucky of the five picks as he pays not only Canadian and provincial tax, but will also be subjected to US state and city tax as well.  Brady Tkachuk selected with the fourth overall selection by Ottawa will net $191,739.15 or 12.61% less over his three-year entry level contract than the selection right after him Barrett Hayton who was drafted by Arizona.

Summary

Taking into consideration the unique jock tax consequences of the top five prospects in this year’s NHL Draft, Dahlin will be the third highest compensated player, while Barrett Hayden who was selected fifth overall by the Arizona Coyotes will be the highest, netting $111,389.97 more than Dahlin.  The two prospects drafted in Canada face the highest tax exposure.

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