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Source: Red Sox expect to go over luxury tax threshold

12.13.11 at 1:16 pm ET
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According to a major league source, the Red Sox expect to exceed the $178 million payroll threshold that would trigger luxury tax payments for the 2012 season. That is, of course, subject to change, but barring a deal that would see the Sox part with an established veteran, the team anticipates taking on enough payroll during the remainder of the offseason that it will have to pay the competitive balance tax in 2012.

The Red Sox typically feature payrolls that scrape against or clear the luxury tax. In eight seasons starting in 2004, the team has exceeded the luxury tax payroll threshold (which is based on the average annual salary of players on the 40-man roster as well as medical and benefits payments) six times, topping out with a $6 million payment in the 2007 championship season (when the Red Sox spent over $163 million in a year in which the threshold was set at $148 million). This year marked the sixth such instance, with the Sox having spent more than $178 million on major league payroll (as calculated for luxury tax purposes), although the precise luxury tax hit on the Sox has yet to be announced.

Now, with the Shoppach signing, the Sox have 13 players under contract for 2012 for approximately $130 million. Additionally, the team will retain David Ortiz (likely to receive in the vicinity of $14 million) and the 23 players who were tendered contracts for 2012 on Monday will likely add approximately $20 million in additional payroll. Combined with the benefits payments, that would push the team’s 2012 payroll between $170 million and $175 million, with the team still looking to add multiple pitchers to round out both the rotation and the bullpen.

All of that makes it virtually inevitable that the Sox will end up clearing the luxury tax in 2012, though the team will try to remain close to the $178 million mark to minimize its penalty. Assuming the team does spend beyond the $178 million payroll, the Sox will be taxed at a 40 percent rate for any payroll that exceeds the luxury tax threshold, a percentage that reflects the fact that next year would mark the third straight in which the Sox paid the luxury tax.

Even so, the team has a significant incentive to get below the luxury tax threshold in coming years. If the Sox go over the mark in both 2012 and 2013, they will be penalized at a 50 percent rate in ’13. On the other hand, if the Sox move back below the luxury tax threshold, the tax rate will re-set. If, for instance, the Sox fall below the luxury tax threshold in 2013 but then exceed it in 2014, they would be penalized at a 17.5 percent tax rate in 2014.

While mindful of the luxury tax implications of any money spent now, the Sox seem resigned to the probability that they will spend beyond next year’s $178 million threshold. However, they are also operating as if they have limited resources to spend this winter, as the team has no apparent plans to blow past that mark.

For a breakdown on the Red Sox’ current payroll commitments for next season, click here.

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