Mark Stone might feel as if he won the lottery by getting traded to the Vegas Golden Knights minutes before the NHL’s trade deadline on February 25. The move to Las Vegas could come with a bigger jackpot then just a chance at winning the Stanley Cup: Nevada is one of 11 states in the U.S. that do not have an income tax, and this will have a dramatic impact on Stone’s future finances.
Shortly after being traded from the Ottawa Senators to the reigning Western Conference champions, Stone agreed in principle with Vegas on a massive eight-year, $76 million extension. (Since the details of the contract are not yet public, we will assume an average annual value of $9.5 million.) This will be a considerable raise from the one-year contract Stone signed in the summer of 2018 for $7,350,000.
On the ice, Stone has already helped Vegas, which has gone undefeated in his first five games. Off the ice, Stone may need to find an all-star tax adviser to help protect his assets as he gets accustomed to the U.S. tax system. If advised properly, Stone could save an estimated $570,000 over the life of the new contract.[/vc_column_text][/vc_column][/vc_row][vc_row equal_height=”yes” content_placement=”middle”][vc_column width=”1/2″][vc_column_text]As a Canadian citizen who had played his entire career in Canada, he had been subjected only to Canadian taxes. The United States- Canada Income Tax Treaty of 1980 exempts Canadian residents that are employed by a Canadian team from paying taxes in the U.S.
However, now that Stone is a Golden Knight, he and his $76 million will be subject to U.S. state and federal income taxes. You might be saying, “Wait, I thought Nevada didn’t have a state income tax.” And you are right! But Stone is now also subject to the “jock tax” for every other state that he plays in.[/vc_column_text][/vc_column][vc_column width=”1/2″][vc_single_image image=”5998″ img_size=”full” alignment=”center”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]A typical regular season will have Vegas playing in several states. (The breakdown here is for the team’s 2018-19 away schedule.)
Breakdown of away games for Vegas during the 2018-19 season
Based on an 82-game regular-season schedule, Stone would have to pay income tax on 37 of his games. (Tennessee, Texas and Florida also do not have state income taxes based on salaries or wages earned.) Stone would also be subject to Canadian taxes on the 10 games played in Canada and might face other Canadian tax requirements.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5154″ img_size=”full” alignment=”center”][vc_column_text]Playing for Vegas puts Stone in a substantially better situation than any player based in a state that collects state income taxes. Players in a state that has an income tax will be taxed on nearly all of their regular-season games (except for the games played in Nevada, Tennessee, Florida and Texas).
On top of state income taxes, players pay federal income tax. Under the recently passed federal tax law, a professional hockey player in the NHL will be subject to a federal tax rate anywhere between 24% and 37%. Mark Stone will likely be subject to the 37% tax rate.
The new tax law has also made it more difficult for professional athletes to write off work-related expenses. The new tax law placed a cap on the total value of deductions available for work-related expenses at $10,000 a year. This cap, says Steve Lake—a CPA and tax adviser who works with me at Beyond the Playbook, a strategic business advisory for athletes—“could cost athletes hundreds of thousands more a year in taxes.”
A state’s tax rate can be quite high. California imposes a 13.3% income tax. Therefore, a player playing for one of the three California-based teams could face a 50% income tax (federal and state) on all games played in the Golden State.
In Stone’s case, he will have to pay the 13.3% state tax for only those seven or eight games in California each season.
Being able to effectively mitigate tax exposure is critical for NHL players because of the additional “internal tax” that comes in the form of escrow.
The 2012 NHL Collective Bargaining Agreement initiated several new revenue-sharing features, including the escrow requirement. Under that agreement, a portion of a player’s salary is placed into an escrow account. This agreement ensures that at the end of the season, the players as a whole are receiving 50% of the total revenue generated by the league. (The owners receive the other 50%.)
The escrow rate is typically around 15.5% each season. The 2018-19 season started with a substantially reduced escrow rate of 11.5%; however, this was raised to 13.5% in December.
In addition to the NHL escrow system and state and federal taxes, players also owe 3% of their salaries to their agents. After all of these payments are made, players will typically see only around 35% of their total salaries.[/vc_column_text][/vc_column][/vc_row][vc_row equal_height=”yes” content_placement=”middle”][vc_column][vc_column_text]So while Stone has a deal that is worth an estimated $9.5 million a season, given those commitments and the lack of a state income tax in Nevada, he will receive only around 45% of his salary: $4.275 million per season. (This calculation does not account for any bonuses, which could further help create tax savings).
Breakdown of Taxes and other fees
By signing with Vegas, Stone could shield 54.8% of his game checks from state income taxes, which could have been as high as 13.3% if he followed his former Ottawa teammate Erik Karlsson to California. Unlike Karlsson, Stone has saved an estimated $71,250 each season in state income taxes for home games alone—an estimated savings of $570,000 over the life of the contract. Talk about an ace in the hole![/vc_column_text][/vc_column][/vc_row]