If a team exceeds the Tax Level in a given year, it is subject to paying the “Luxury Tax.” If the team is a first-time offender, or has exceeded the Tax Level in less than 3 out of 4 of the previous years, it is subject to the Standard Tax Rates. If the team has exceeded the Salary Cap in at least 3 of the previous 4 years, it is subject to the Repeater Tax Rates. The Luxury Tax is designed to discourage teams from exceeding the Salary Cap.
For 2017-2018, the NBA Salary Cap is $99.093 million and the tax level is $119.266 million.
EXAMPLE 1: In the current season, if a team exceeds the salary cap by $14,500,000, and it is the first time the team has done so in the previous four seasons, they are subject to the following tax payments:
$14,500,000 * $2.50 = $36,250,000 in Luxury Tax
EXAMPLE 2: In the current season, if a team exceeds the salary cap by $31,500,000, and it is the third time the team has done so in the previous four seasons, they are subject to the following tax payments:
$31,500,000 * $5.75 = $181,125,000 in Luxury Tax
2017-2018 Example: Before the Trade Deadline, the Cleveland Cavaliers sit at $137,232,832 in salaries. They have not been over the Tax Level in three of the past four years, making them subject to the Standard Tax Rates. If the season were to end today, they would be subject to the following Luxury Tax Payments:
$14,734,000 * $2.50 = $36,835,000 in Luxury Tax
I'm Jake, a recent graduate of Duke University pursuing a career in collegiate or professional basketball operations.
Cap #s 2018 - 2019
Salary Cap: $101.869M
Lux. Tax: $123.733M
Tax Apron: $129.827M
Tax Floor: $91.682M
Room MLE: $4.45M