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  • Ryan Bernardoni

A Taxing Situation


The Celtics completed the signing of Marcus Smart today, which makes me happy. Smart is one of my all time favorite Celtics and so to see his situation resolved in a way that could potentially keep him in Boston for years to come is nice.


The $52 million contract pushed the C's into luxury tax territory which has sent some people into a frenzy of trying to figure out how the team will avoid that. I've been getting a lot of questions on this, so here are some notes put all in one place so I can just reply to people with a link instead of writing it out dozens of times...


How far over the tax are they?


If the season ended today, the Celtics would be $3,856,123 over the tax line, resulting in a payment of $5,784,185.


If you look around you can find a bunch of different numbers quoted for this. The most common number you'll see is one around $3,000,000 over. This is usually because the person has counted Daniel Theis and Brad Wanamaker incorrectly. Players acquired via free agency (not via 1st or 2nd round draft rights) who make less than the two year veteran minimum count for that two year minimum on the tax, not their actual salary.


Wanamaker is being paid $838,464 and Theis $1,378,242 but each actually count for $1,512,601 in tax math. That roughly $800k difference is why a lot of people get it wrong. This is a weird rule that can understandably be missed. The ShamSports.com Capulator does not account for it; my own roster-builder.com tool didn't account for it in the first few years of its existence, either.

Note that Semi Ojeleye and Abdel Nader count for their actual salaries because they were drafted. If Jabari Bird ends up on the team and is signed for his minimum salary, he would also count for that and not the two year min. Bird's Non-Bird Rights (confusing, I know) allow the team to pay him up to $1.6M without dipping into the MLE which would be above the 2 year minimum, if they went that route.


What does being in the tax really do?


A few things. Most notably is that ownership, a collection of very rich people who own a massively appreciating asset, have to pay the luxury tax!


The league takes all those tax payments and distributes at least half of the total amount equally back to the non-taxpaying teams so you also miss out on that.


In terms of immediate team building, you only get to use the Taxpayer Mid-level Exception instead of the larger Non-taxpayer Mid-level and you also lose access to the Bi-annual Exception.


Taxpaying teams are also always limited to the most restrictive salary matching rules in trades. They are only allowed to take back 125% plus $100k of the total guaranteed salary that they send out in any one trade (for the current cap year).


When do they have to be under the tax line by?


The luxury tax is calculated based on a team's cap sheet on the last day of the season. If they're fine with paying the tax they obviously don't ever have to go under, but if they want to avoid the tax then they have time to get their payroll where it needs to be.


In practical terms, they would need to be under the tax by the trade deadline to avoid being a tax team for the season.


The Repeater Tax is a big deal?


Repeater status adds a dollar-for-dollar hit on top of the normal luxury tax for teams that have been in the tax three of the past four seasons. Boston will likely be in the tax for all of 2019-20 through 2021-22 so it would be nice to not start that counter for another season, but you never really know.


Four years is a long time and the Celtics have a title contention window open now so taking steps to increase their odds of hanging a banner in the next 24 months is more important than worrying about the exact tax rate that far out into the future.


The Celtics are going to trade Marcus Morris to avoid the tax, right?


I can do salary cap math but I don't actually know the team's plans or budget and can't see the future. It's possible that they could move Morris as part of a plan to avoid the tax but it's also possible that they just don't care too much about the tax and think that Morris is an important part of their title push.


If they do decide to move him, it's still not as easy as it might seem to clear the tax line. There aren't that many teams with the cap space or trade exception to take even his modest contract without sending back salary in return. The Kings could do it from cap space. The Cavs have a trade exception that expires in August from the Kyrie trade. The Hornets, Pistons, Trailblazers, and Nuggets all have TPEs expiring later that could fit him, too.


Morris is too good of a player to just salary dump, though. Unless you get to the deadline and he's out of the rotation you would expect to get something decent in return for him. Maybe a team that can absorb his whole salary gives you a pick for him, but that's not a big pool of teams to work from, and the Kings are going to be bad and the Nuggets and Blazers have already made moves to cut salary and avoid the tax themselves.


EDIT: The Thunder now also have a big enough TPE following the Carmelo Anthony trade, but are also already deep into the tax.


If you take a player in return, it's probably not enough to get the team under the tax. If it's a player you're taking for salary matching purposes, and not a minimum contract from a team with space/TPE, it definitely doesn't get you under.


Even if you just sign a minimum contract player into the roster spot Morris would vacate you're just under the line; if you want to use the Taxpayer MLE for that slot you're back over.


Simply keeping a player like Morris has value, and could be what the team does. If they do move him, I would hope that it's because they think they have a good trade that returns some value years down the line, and not just a straight dump that would then hamstring them in other ways. Moving Morris for value and then also making another salary clearing move, possibly with Yabusele, could strike a better balance between tax avoidance and team performance.


Signing Smart to ascending annual salaries means the tax is a concern, right?


It's certainly an indicator that they haven't given up on the idea of getting under the tax line. A front-loaded contract would have functionally eliminated the possibility.


What up with those weird salaries, though?


Smart's contract was reported as 4/$52M with full 8% raises which would produce slightly different results than his actual salaries. What he really signed is a 4/$50M contract with full 8% raises, and then a $500k bonus each year if he meets a weight requirement.


The weight bonus is considered "likely" and so counts in their salary cap calculation.


Does that $500k count against the tax, too?


Only if he makes weight. If they don't pay the bonus, it does not count in the tax calculation.


Anything else I should know?

  • The team must have at least 14 full NBA players so you can't just dump a few guys and not re-fill their roster spots.

  • The team still has their Taxpayer MLE available for contracts up to $5,337,000 in the first season and lasting as many as three seasons.

  • In theory they could trade someone like Morris for no returning salary and then open up the Non-taxpayer MLE, but using that would then put them back above the tax line, which would theoretically be the reason they moved Morris.

  • Jabari Bird's minimum contract for this season is the one year minimum of $1,349,383, not the rookie minimum.

  • Abdel Nader has only $450k of his salary guaranteed but the whole thing becomes guaranteed on August 1.

  • Salaries for this season can only be stretched (divided up by the number of years left on the contract plus one) if they're waived before the end of August.

  • Demetrius Jackson was stretched last season but it's not like the old amnesty provision; there's no limit to the number of players a team can stretch.

  • Two-way contracts do not count against the luxury tax, even for the days that the player is with the NBA club.

  • If a player is fined by the league, half of the fine is removed from the team's luxury tax calculation (assuming the player is with the team at the end of the season).

  • If the team fines a player, it does not impact their luxury tax calculation.

  • There are probably other things that you should know, but this has gone on long enough.

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