luxury tax

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A scheme in which teams or clubs in a league pool a percentage of net local income (after local expenses are deducted), a proportion of which is then redistributed to the less financially well-off clubs or teams in the lower half of the league. The luxury tax is a modern innovation, operated only in the USA, conceived as a form of revenue sharing. It was first operated by Major League Baseball (MLB) in a 1996 agreement, implemented for season 1997–9, dropped, and then reinstated in 2002. The National Basketball Association initiated a luxury tax under the name of a ‘team tax’ in a 1999 agreement, which was implemented in the 2002–3 season, and revised in 2005. In such a Collective Bargaining Agreement (CBA), the monies from the luxury tax are owned, allocated, and distributed by the league itself.

Subjects: Sport and Leisure.

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