Each season, teams that exceed a predetermined Team Value threshold are subject to a Competitive Balance Tax — which is commonly referred to as a “luxury tax.” Those who carry Team Values above that threshold are taxed on each dollar above the threshold, with the tax rate increasing based on the number of consecutive seasons a team has exceeded the threshold.
- Season 4: 2250
- Season 5: 2150
- Season 6: 2150
- Season 7: 2150
- Season 8: 2400
A team exceeding the Competitive Balance Tax threshold for the first time must pay a 20 percent tax on all overages. A team exceeding the threshold for a second consecutive season will see that figure rise to 30 percent, and three or more straight seasons of exceeding the threshold comes with a 50 percent luxury tax. If a team dips below the luxury tax threshold for a season, the penalty level is reset. So, a team that exceeds the threshold for two straight seasons but then drops below that level would be back at 20 percent the next time it exceeds the threshold.
Teams that can not pay the Competitive Balance Tax will need to make the proper team adjustments to reduce their Team Value to a level that either lowers the tax to a rate they can afford or lowers the Team Value below the threshold.