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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: