Thursday, July 11, 2013
Luxury tax's 'good ol' days' coming to end
By Larry Coon
As detailed by Marc Stein on Tuesday night, the NBA has completed its annual audit, which marks the end of its July moratorium and the start of the free-agent signing period. The audit gives the league a chance to count the money it has earned and set the values of the salary cap, luxury tax and minimum team salary for the upcoming season.
The audit also determines the tax amounts for the just-completed season, with the Lakers leading the way at $29.3 million to cap off a season that, by their standards, falls somewhere on the spectrum between “disappointing” and “disastrous.”
2012-13 was the final season in which a team pays a dollar in tax for each dollar it exceeds the tax threshold -- a time that soon will come to be known as “the good ol’ days.” Starting next season, the base rate kicks up by 50 percent to $1.50 for each dollar a team is over the tax line. And that’s just for the first $5 million. A team that is more than $5 million over the tax line pays $1.75 on every dollar above $5 million. It gets worse from there. A team more than $10 million over the tax line pays $2.50 per dollar, and a team more than $15 million over the line pays $3.25, with the rate continuing to climb by 50 cents on the dollar for each additional $5 million.
It’s enough to make even the richest teams take notice. For example, the Lakers’ $29.3 million tax bill would equate to a little over $82 million under the new system.
Then there’s the repeater tax, which comes into play in 2015. A team that paid the tax in every year from 2012 to 2015 gets an extra dollar tacked on to its progressive rate. $1.50 becomes $2.50, $1.75 becomes $2.75, etc. A team like the Lakers that is $29.3 million over the tax line would pay $111.3 million as a repeater.
Luckily, teams have another season to prepare for that eventuality. Starting in 2016, the repeater rate applies to any team that was a taxpayer in any three of the previous four seasons.
Now that the tax results are in, here are a few additional observations:
- To be a repeater in 2015, a team must be a taxpayer in every season from 2012 to 2015. The only teams that are in danger -- i.e., having paid the tax in 2012 and 2013 -- are the Celtics, Heat and Lakers.
- The luxury tax has been in existence since 2002 but wasn’t applied in 2002 or 2005 because conditions weren’t met that would have triggered the tax league-wide. This rule existed only in the 1999 collective bargaining agreement; starting with the 2005 agreement, the tax is always in effect.
- No team has paid the tax in every season in which it was applied. The Dallas Mavericks came the closest, paying the tax in every season prior to 2012-13. Other frequent taxpayers are the Lakers (eight times), Knicks (eight) and Celtics (six).
- The Lakers’ $29.3 million tax bill is only the fifth largest ever paid. The honor of the biggest tax bill in a single season goes to the Portland Trail Blazers, with $52 million paid in 2003. Other large tax bills were paid by the Knicks, with $45.1 million in 2007, $39.9 million in 2004 and $37.2 million in 2006. It is worth noting that only two of these teams (the 2013 Lakers and 2003 Blazers) made the playoffs, and neither made it past the first round. So much for the idea of buying a championship.
- Collectively, the team paying the most tax all-time is the Knicks with $205.2 million. After that comes the Mavericks ($150.4 million), Lakers ($113.9 million) and Trail Blazers ($89 million).
- On the other end of the spectrum, six teams have managed to avoid the tax in every year of its existence: the Bobcats, Warriors, Clippers, Pelicans, Sonics/Thunder and Wizards. Since tax revenues usually are distributed to the non-taxpaying teams, these teams each collected a total of $29.3 million over the years from their brethren.
- Chicago was a taxpayer for the first time this season. Houston and Milwaukee also paid the tax only once –- in 2011 and 2003, respectively.
- Most teams end up paying the tax in some years and collecting tax proceeds from the league in other years. In terms of net dollars paid over the years, the Knicks lead the way at $202.9 million. Next come the Mavericks ($148.9 million), Lakers ($109.6 million) and Trail Blazers ($76.4 million).
- Other teams that have spent more money than they have received in luxury tax: the Celtics, Nets, Cavaliers, Nuggets, Heat, Timberwolves, Magic and Kings.
- The teams that have received more luxury tax money than they have spent are the Hawks, Bobcats, Bulls, Pistons, Warriors, Rockets, Pacers, Clippers, Grizzlies, Bucks, Pelicans, Thunder, Suns, Spurs, Raptors, Jazz and Wizards.
- Philadelphia has broken even, spending a total of $17.9 million in 2003 and 2004 and receiving an equal amount (to the nearest $100,000) in the remaining years.
- League-wide, teams have paid a total of $924.3 million into the luxury tax system over the years. Of this amount, $284.6 million was used for “league purposes,” such as funding revenue sharing. The remaining $639.7 million was distributed to non-taxpaying teams.