Calculating Luxury Tax contest knowledge test

[brackdan70]

I see so many errors on Twitter and espn and other sources from presumably knowledgeable people.

Let’s see how we do on real gm.
Mods feel free to lock or move if too off topic

2025/26 season tax threshold expected to be around 188 million.
A team in the repeater tax with 233 million$ payroll. What’s the tax bill?

[jayjaysee]

287ish assuming 10% cap jump.

Spoiler:

5*154.6/140.58 = 5.5 (ish)

3*5.5
3.25*5.5
…
8.75*5.5
9.25*5.5
=277.75 penalties for 232 salary.

So would seem need to add 1 million in salary which looks like 9.25 (18% of 50.8) in taxes?

Or completely wrong of course.

[meekrab]

208.75

though looking into it further it sounds like the incremental brackets changed after 23-24 so it's no longer a straightforward every 5 million the rate goes up, but that would make the right answer less than this so I'm confused how Spotrac has a larger number.

[xdrta+]

$280,650,000

Showing my work

Spoiler:

Tax brackets rise each year according to a formula in the CBA. Assuming 10% cap rise, they would be $5.8MM for 25-26.
$45,000,000 above tax
Tax brackets = $5,800,000

Repeater tax rates

1-$5.8MM @ $3 per $1 = $17,400,000
$5.8-11.6 @ $3.25 per $1 = $18,850,000
$11.6-17.4 @ $5.50 per $1 = $31,900,000
$17.4-23.2 @ $6.75 per $1 = $39,150,000
$23.2-29 @ $7.25 per $1 = $42,050,000
$29-34.8 @ $7.75 per $1 = $44,950.000
$34.8-40.6 @ $8.25 per $1 = $47,850,000
$40.6-45 @ $8.75 per $1 = $38,500,000

Total................................$280,650,000

[brackdan70]

287ish assuming 10% cap jump.

Spoiler:

5*154.6/140.58 = 5.5 (ish)

3*5.5
3.25*5.5
…
8.75*5.5
9.25*5.5
=277.75 penalties for 232 salary.

So would seem need to add 1 million in salary which looks like 9.25 (18% of 50.8) in taxes?

Or completely wrong of course.

I think you are calculating from the cap rather than the lux tax line. Which would be 188 million.

[xdrta+]

287ish assuming 10% cap jump.

Spoiler:

5*154.6/140.58 = 5.5 (ish)

3*5.5
3.25*5.5
…
8.75*5.5
9.25*5.5
=277.75 penalties for 232 salary.

So would seem need to add 1 million in salary which looks like 9.25 (18% of 50.8) in taxes?

Or completely wrong of course.

The denominator in your formula should be the 23-24 cap, or $134MM.

[brackdan70]

$280,650,000

Showing my work

Spoiler:

Tax brackets rise each year according to a formula in the CBA. Assuming 10% cap rise, they would be $5.8MM for 25-26.
$45,000,000 above tax
Tax brackets = $5,800,000

Repeater tax rates

1-$5.8MM @ $3 per $1 = $17,400,000
$5.8-11.6 @ $3.25 per $1 = $18,850,000
$11.6-17.4 @ $5.50 per $1 = $31,900,000
$17.4-23.2 @ $6.75 per $1 = $39,150,000
$23.2-29 @ $7.25 per $1 = $42,050,000
$29-34.8 @ $7.75 per $1 = $44,950.000
$34.8-40.6 @ $8.25 per $1 = $47,850,000
$40.6-45 @ $8.75 per $1 = $38,500,000

Total................................$280,650,000

So it jumps from 3.25 to 5.50 or /1 ? Maybe that’s where I am going wrong. Is that notated in the CVA?

[xdrta+]

$280,650,000

Showing my work

Spoiler:

Tax brackets rise each year according to a formula in the CBA. Assuming 10% cap rise, they would be $5.8MM for 25-26.
$45,000,000 above tax
Tax brackets = $5,800,000

Repeater tax rates

1-$5.8MM @ $3 per $1 = $17,400,000
$5.8-11.6 @ $3.25 per $1 = $18,850,000
$11.6-17.4 @ $5.50 per $1 = $31,900,000
$17.4-23.2 @ $6.75 per $1 = $39,150,000
$23.2-29 @ $7.25 per $1 = $42,050,000
$29-34.8 @ $7.75 per $1 = $44,950.000
$34.8-40.6 @ $8.25 per $1 = $47,850,000
$40.6-45 @ $8.75 per $1 = $38,500,000

Total................................$280,650,000

So it jumps from 3.25 to 5.50 or /1 ? Maybe that’s where I am going wrong. Is that notated in the CVA?

This is the huge jump in tax rates in 25-26. They made it seriously punitive for repeaters. Search for "repeater tax rates" in the CBA to get the schedule.

[jayjaysee]

287ish assuming 10% cap jump.

Spoiler:

5*154.6/140.58 = 5.5 (ish)

3*5.5
3.25*5.5
…
8.75*5.5
9.25*5.5
=277.75 penalties for 232 salary.

So would seem need to add 1 million in salary which looks like 9.25 (18% of 50.8) in taxes?

Or completely wrong of course.

The denominator in your formula should be the 23-24 cap, or $134MM.

It’s my understanding that it’s a yearly change.

So if you’re asking for the 2025-2026 tax, it should be 25-26/24-25?

The 2024-2025 tax brackets would be 24-25/23-24..

[jayjaysee]

287ish assuming 10% cap jump.

Spoiler:

5*154.6/140.58 = 5.5 (ish)

3*5.5
3.25*5.5
…
8.75*5.5
9.25*5.5
=277.75 penalties for 232 salary.

So would seem need to add 1 million in salary which looks like 9.25 (18% of 50.8) in taxes?

Or completely wrong of course.

I think you are calculating from the cap rather than the lux tax line. Which would be 188 million.

188 is the tax, yes.

So I’m calculating 45 million in tax to get to 233.

Each tax bracket being 5.5 million. And raising implications.

Not saying my numbers are right, but it is 45 million over the tax..

[xdrta+]

287ish assuming 10% cap jump.

Spoiler:

5*154.6/140.58 = 5.5 (ish)

3*5.5
3.25*5.5
…
8.75*5.5
9.25*5.5
=277.75 penalties for 232 salary.

So would seem need to add 1 million in salary which looks like 9.25 (18% of 50.8) in taxes?

Or completely wrong of course.

The denominator in your formula should be the 23-24 cap, or $134MM.

It’s my understanding that it’s a yearly change.

So if you’re asking for the 2025-2026 tax, it should be 25-26/24-25?

The 2024-2025 tax brackets would be 24-25/23-24..

From the CBA:

“Tax Bracket Amount” means, for a Salary Cap Year, an amount equal to $5 million multiplied by a fraction, the numerator of which is the Salary Cap for such Salary Cap Year and the denominator of which is the Salary Cap for the 2023-24 Salary Cap Year.

IOW, the numerator changes each year, the denominator is the same.

[jayjaysee]

The denominator in your formula should be the 23-24 cap, or $134MM.

It’s my understanding that it’s a yearly change.

So if you’re asking for the 2025-2026 tax, it should be 25-26/24-25?

The 2024-2025 tax brackets would be 24-25/23-24..

From the CBA:

“Tax Bracket Amount” means, for a Salary Cap Year, an amount equal to $5 million multiplied by a fraction, the numerator of which is the Salary Cap for such Salary Cap Year and the denominator of which is the Salary Cap for the 2023-24 Salary Cap Year.

IOW, the numerator changes each year, the denominator is the same.

Yeah I didn’t see that. that feels like an unsustainable penalty really.

[brackdan70]

Ok thanks all. Appreciate the expertise.
Looks like somewhere in that 286 million to 288 million is accurate assuming 10% cap bump.
Crazy!!!!

[xdrta+]

Ok thanks all. Appreciate the expertise.
Looks like somewhere in that 286 million to 288 million is accurate assuming 10% cap bump.
Crazy!!!!

Where does that number come from? Someone mentioned Spotrac? I'd like to see where $280,650,000 is off.

[brackdan70]

Ok thanks all. Appreciate the expertise.
Looks like somewhere in that 286 million to 288 million is accurate assuming 10% cap bump.
Crazy!!!!

Where does that number come from? Someone mentioned Spotrac? I'd like to see where $280,650,000 is off.

It’s just rounding on the fraction used I think. I came up with 5.7 million rather than 5.8 million. For the brackets. I think that’s where variability in estimates is. I think the actual 2023/24 tax was 136.02 million. I assumed 154 million for 2025/26. So 154/136 x 5 got me 5.7

[xdrta+]

Ok thanks all. Appreciate the expertise.
Looks like somewhere in that 286 million to 288 million is accurate assuming 10% cap bump.
Crazy!!!!

Where does that number come from? Someone mentioned Spotrac? I'd like to see where $280,650,000 is off.

It’s just rounding on the fraction used I think. I came up with 5.7 million rather than 5.8 million. For the brackets. I think that’s where variability in estimates is. I think the actual 2023/24 tax was 136.02 million. I assumed 154 million for 2025/26. So 154/136 x 5 got me 5.7

Ah, you're correct. The 23-24 cap was $136MM. The example in the CBA used $134MM as the cap, and I mistakenly assumed that was the right number. Thanks.

[jayjaysee]

Ok thanks all. Appreciate the expertise.
Looks like somewhere in that 286 million to 288 million is accurate assuming 10% cap bump.
Crazy!!!!

Where does that number come from? Someone mentioned Spotrac? I'd like to see where $280,650,000 is off.

The Spotrac number I started with was just looking at the Suns cap for next season. It’s pretty close to the 233 number..

https://www.spotrac.com/nba/phoenix-suns/tax/_/year/2025/sort/tax_total

And lines up pretty well with this thread.