Luxury tax projections

When you have grandkids, one day you might tell them (cue grandfatherly voice), “Sonny, when I was your age, the NBA luxury tax was only dollar-for-dollar.” This is the last season of the *cough* cheap *cough* luxury tax, and we’re at the point in the season where we can project which teams will be paying it, and how much they will owe.

The tax line this season is at $70.309 million, and teams above the tax level will have to pay a dollar for every dollar their payroll exceeds the cutoff. The league uses the team salary as of each team’s last regular season game in its computations, so while teams can no longer lower their payroll (we’re past the trade deadline, and all salaries are now guaranteed for the remainder of the season), they can still raise it by signing 10-day and rest-of-season contracts.

But we still don’t know exactly how much each team will have to pay, because of performance bonuses. These bonuses are classified as either “likely” or “unlikely” based on whether the criterion was achieved the previous season — for example, a bonus based on the player scoring at least 20 points per game would be classified as “likely” if the player had scored 21 PPG the previous season, and “unlikely” if the player had scored 19 PPG the previous season.

Since at the end of each season (when the league does its luxury tax accounting) they know whether or not a bonus was actually earned, they ignore the “likely” and “unlikely” classifications and go by whether the player received the bonus — if he did, then it’s counted in the team salary, and therefore toward the luxury tax, even if it’s not included in the team salary right now.

Likewise, a bonus may be classified as “likely” and be included in the team salary right now, but go unearned and drop off the books for luxury tax purposes. This means a team’s tax bill may end up lower than what you see below.

Other factors that weigh into luxury tax calculations:

  • Cap holds and exceptions are ignored.
  • If a player with a trade bonus is traded after the season ends and before June 30, then the portion of his trade bonus that is charged to the current season is added to the tax.
  • Any amounts from settlements of grievances are added to the tax.
  • Players who signed as free agents (not draft picks) who make less than the two-year minimum salary are taxed at $854,389, the minimum salary for a two-year veteran.
  • Players waived through the Amnesty provision are not counted toward the luxury tax.

Here are the team salaries of the teams that currently are over the tax line, and their projected tax bill (based on their team salary right now, and not factoring in what might happen with bonuses):

Team Team Salary Projected tax
Boston $71,353,390 $1,046,390
Brooklyn $83,110,234 $12,803,234
Chicago $74,111,289 $3,804,289
LA Lakers $99,860,236 $29,553,236
Miami $83,469,746 $13,162,746
New York $79,209,097 $8,902,097

That’s six teams paying a little over $69 million in tax. Last season six teams paid $32 million, as I described in my post looking at the cumulative effects of the tax.

This season 50 percent of the tax revenues will be used to fund the league’s revenue sharing program, and the other 50 percent will be distributed to non-taxpaying teams. The 24 teams not on the above list can each expect to receive a distribution of around $1.44 million, courtesy of the six teams above.

2 thoughts on “Luxury tax projections

  1. Ignacio

    Larry!

    What the hell are “performance bonuses” and how do they account in to tax? Never heard of them before…

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