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The New CBA: Luxury Tax

John Rohde Published: December 6, 2011

Today’s topic in the NBA’s new collective bargaining agreement:

LUXURY TAX

2005: Teams paid $1 for every $1 their salary was above the luxury-tax threshold.

2011: Teams will pay $1 for every $1 their salary is above the luxury-tax threshold in 2011-12 and 2012-13. Starting in 2012-13, teams pay an incremental tax that increases with every $5 million above the tax threshold ($1.50, $1.75, $2.50, $3.25, etc.). Teams that are repeat offenders (paying tax at least four out of the past five seasons) have a tax that is even higher at $1 more at each increment ($2.50, $2.75, $3.50, $4.25, etc.).

Definition: The luxury tax is a mechanism that helps control team spending. Commonly referred to as a “luxury tax,” the CBA simply calls it a “tax” or a “team payment.” It is paid by high spending teams — teams whose payroll exceeds a predetermined tax level. The tax level is determined prior to the season, and is computed by taking 61% of projected BRI, subtracting projected benefits ($112 million in 2005-06), and adjusting for whether the previous season’s BRI was above or below projections. They then divide by the number of teams (except expansion teams in their first two seasons) to arrive at the tax level. Here are the tax levels in each season, and the teams that paid the tax:

Winners: Non-taxpayers. Tax-bracket teams like the Lakers, Mavericks, Celtics, Heat will think twice about obliterating the salary cap because a more punitive tax penalty – presumably. The Lakers’ tax bill last season when the tax was dollar-for-dollar was about $19.9 million. Under the new system, being that far over the tax line would cost them $44.68 million. If they were a repeat offender, they would owe $64.58 million.



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