Each season, teams that exceed a predetermined Team Value threshold are subject to a Competitive Balance Tax, 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
- Season 9: 2400
- Season 10: 2350
A team exceeding the Competitive Balance Tax threshold for the first time must pay a 20% tax on all overages. A team exceeding the threshold for a second consecutive season will see that figure rise to 30%, and three or more straight seasons of exceeding the threshold comes with a 50% 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% the next time it exceeds the threshold.
The Competitive Balance Tax will be taken just before the season starts, once teams are completed, after everything else has been completed / paid for, but before tickets are issued.
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.
If a team breaches the cap level during the season they WILL NOT be charged tax. This will apply whether they were over the cap at the start or not.