LOS ANGELES -- The Dodgers exceeded the competitive balance tax threshold for a third consecutive season, and will be stuck with a bill from Major League Baseball for $43.7 million, per USA Today. It is the highest amount ever levied by MLB for luxury tax purposes, surpassing the Yankees' $34.1 million levy in 2005.
The limit for teams to avoid paying the tax was $189 million in 2015, the same amount it will be in 2016. The 2015 Dodgers payroll, per MLB calculations, was $298.3 million.
The MLB calculations aren't too far off of my internal numbers, which tracks actual money paid out each year. I had the Dodgers' final 2015 payroll at $316 million.
As a tax offender for a third consecutive year, the Dodgers' tax rate is 40 percent of any amount over the $189 million, resulting in their payment due of $43.7 million. The Dodgers paid 17.5 percent as a first-time offender in 2013, and were charged $11.4 million. In 2014, the rate increased to 30 percent, and their bill was $26.6 million.
The penalties for exceeding the tax threshold in a fourth consecutive season, and for all successive seasons after, is 50 percent. To date, the Dodgers have $152.3 million committed to 13 players in 2016.
If you want an idea why the front office talks about building a sustainable long-term pipeline of talent, such that the payroll won't necessarily be above $200 million every year, if under the current system the Dodgers could move under the threshold in any one year their tax rate would reset that year, such that their next time exceeding the mark would be taxed at a 17.5-percent rate on the overage rather than a 50-percent rate.
The collective bargaining agreement calls for the competitive balance tax to be distributed by MLB as follows:
The first $2,375,400 of proceeds collected for each Contract Year shall be used to fund benefits to Players, as provided in the Major League Baseball Players Benefit Plan Agreements.
50% of the remaining proceeds collected for each Contract Year, with accrued interest, shall be used to fund benefits to Players, as provided in the Major League Baseball Players Benefit Plan Agreements.
25% of the remaining proceeds collected for each Contract Year shall be contributed to the Industry Growth Fund and, with accrued interest, used for the purposes set out in Article XXV.
25% of the remaining proceeds collected for each Contract Year, with accrued interest, shall be used to defray the Clubs’funding obligations arising from the Major League Baseball Players Benefit Plan Agreements.
The competitive balance tax payment is due to the commissioner's office by January 21, 2016.