Question

In the MLB, the tax threshold for the 2012 and 2013 seasons was $178 million. The tax threshold for the 2014, 2015 and 2016 seasons is $189 million. Suppose a team had a payroll of $178 million in 2012, $185 million in 2013, $195 million in 2014, $188 million in 2015 and $200 million in 2016. What is the luxury tax penalty the team will have to pay each season?

$_________________ 2012 Luxury Tax Penalty

$_________________ 2013 Luxury Tax Penalty

$_________________ 2014 Luxury Tax Penalty

$_________________ 2015 Luxury Tax Penalty

$_________________ 2016 Luxury Tax Penalty

Answer 1

Calculation of Luxury tax Penalty.

Applicable tax rate are as follows:-

If actual club payroll exceeds the base tax threshhold:-

A) Exceeds by $20 Million

1) First Time Offender - 20%

2) Second time offender - 30%

3) Third Time Offender - 50%

Year	Luxury Tax Penalty	Remarks
2012	$0 (Actual payroll does not exceed base tax threshold)
2013	$1.4 Million ($185 Million - $178 Million)*20%	First Time offender
2014	$1.8 Million ($195 Million - $189 Million)*30%	Second time offender
2015	$0 (actual payroll does not exceed base tax threshold)
2016	$5.5 Million ($200 Million - $189 Million)*50%	Third Time offender