[Bette]

Whats the Luxury tax and how does it work?

[Full Cougar]

Not sure about basketball but I know in baseball certain teams, (such as the Yankees), have to give out a certian amount of their revenue to smaller market teams (such as the Marlins, and Royals).I would assume it is similar in basketball.

[Bette]

I read that the Magic would be willing to pay the luxury tax to keep the Turk. Didnt have any idea what it meant.
Guess we dont have any NBA experts on here.

[Full Cougar]

Originally Posted by Bette

I read that the Magic would be willing to pay the luxury tax to keep the Turk. Didnt have any idea what it meant.
Guess we dont have any NBA experts on here.

Maybe that means to keep them they would go over the set NBA salary cap, and if you go over that limit, you are forced to pay a luxury tax that goes to certain teams in the NBA. Thats my guess.

[Racer Duck]

The NBA Salary Cap is the limit to the total amount of money that National Basketball Association teams are allowed to pay their players. While this seems simple enough in concept, the salary cap is in actuality extremely complex, and contains many obscure rules and loopholes as the NBA has a "soft" cap.

The actual amount of the cap varies on a year-to-year basis, and is calculated as a percentage of the League's revenue from the previous season; for instance, in 2006-07, the NBA's salary cap was approximately US$53.135 million per team, and for the 2007-08 season it was $55.63 million[1]. Like many professional sports leagues, the NBA has a salary cap to keep teams in larger markets (with more revenue) from buying all of the top players and extending their advantage over smaller-market franchises. The 2008-09 salary cap has been set at $58.68 million.

more at NBA Salary Cap - Wikipedia, the free encyclopedia

[Bette]

Luxury Tax - Since the NBA utilizes a soft cap allowing teams to exceed the salary cap to resign their players, the league instituted a luxury tax in 1999 to penalize teams that exceeded the cap by a large amount. Even though the the luxury tax was instituted in 1999, the first year it came into effect was the 2002-03 season. For each dollar a team is over the luxury tax they must pay one dollar to the league which is then dispersed between the teams below the luxury tax threshold. The Luxury Tax again was not triggered in 2004-05 as the BRI (Basketball Related Income) as the players paid into there escrow accounts lowering the BRI percentage of salaries and benefits below the trigger point of 55%.
For example, the Dallas Mavericks have a payroll totaling $79,351,704 and the Luxury Tax for the 2007-08 season is $67,865,000 so the Dallas Mavericks will need to pay the league $1 for every dollar they are over the luxury tax threshold. In this case the Mavericks will owe $11,486,704 to the league as a penalty for exceeding the Luxury Tax number.
In the new CBA agreed upon in 2005 provided an 'amnesty clause' which is a one time opportunity to waive one and only one player to avoid him counting against the teams luxury tax number however his salary will still count against their cap number. A team may not re-sign or acquire said player until the length of the terminated contract.



NBA Salary Cap|NBA Luxury Tax| Mid-level Exception


Thats what you said in fewer words FC . Duck just gave us a definition of salary cap, probably to give us a hint to look it up on our own. If you go to the site, the whole thing is tremendously complicated. My eyes started rolling up into my head about a paragraph or two down so I have no idea what it said.

[Racer Duck]

Sorry I "clipped" the wrong info .. if ya had read down the page a bit ya would have found this:

Luxury tax

While the soft cap allows teams to exceed the salary cap indefinitely by re-signing their own players using the "Larry Bird" family of exceptions, there are consequences for exceeding the cap by large amounts. A luxury tax payment is required of teams whose payroll exceeds a certain "tax level," determined by a complicated formula, and teams exceeding it are punished by being forced to pay one dollar to the League for each dollar by which their payroll exceeds the tax level.

While most NBA teams hold contracts valued in excess of the salary cap, few teams have payrolls at luxury tax levels. The tax threshold in 2005-06 was $61.7 million dollars. In 2005-06, the New York Knicks' payroll was $124 million, putting them $74.5 million above the salary cap, and $62.3 million above the tax line, which Knicks owner James Dolan paid to the league. Tax revenues are normally redistributed evenly among non-tax-paying teams, so there is often a several-million-dollar incentive to owners not to pay the luxury tax.

In the summer of 2005, the new CBA provided an amnesty clause: a one-time opportunity for each team to waive one, and only one, player and avoid having him count against the team's luxury tax calculation. The amnesty provision only affected the team's luxury tax status, though. The waiving team must continue to pay the player, his salary continues to count against their salary cap, and all other salary calculations are unaffected. However, the team may not re-sign or re-acquire the player for the length of the terminated contract. In all other respects, the player is treated just like any other waived player.
The amnesty provision was derisively named the Allan Houston Rule (with Houston being symbolic of a free-agent class that was signed to ill-advised maximum contracts before the luxury tax was initiated), but the Knicks chose not to waive Houston under its terms, instead releasing Jerome Williams. Other players who were waived using the amnesty provision included Michael Finley, Brian Grant and Derek Anderson.

The luxury tax level for the 2008-09 season, is set at $71.15 million.

[Bette]

Originally Posted by Racer Duck

Sorry I "clipped" the wrong info .. .

lol I see. I thought it was one of your little hints to "look it up people"
The whole system is tremendously complicated though. It must take a whole gaggle of lawyers just to keep up with it.

[KnicksFan87]

Can anyone translate this in simple terms? Hahaha.

[Full Cougar]

Originally Posted by KnicksFan87

Can anyone translate this in simple terms? Hahaha.

The league sets a number. Here is a hypothetical situation. To make it simple lets say 5 dollars. So now the Boston Bulldogs have 4 dollars in 2007. They do not have any problems because they are below the league's set luxury tax at 5 dollars. However in 2008, a new owner takes over the Bulldogs.

Now the new owner uses 8 dollars to pay his players. That is 3 dollars over the luxury tax.

The league has a rule that 5 dollars must be payed for every dollar over the luxury tax. Therefore the Bulldogs have to pay 15 dollars. Do you get it now?

[kkfan91]

i believe its 75% or 200 dollars oh wait we aren't talking about monoply are we?