The Houston Rockets quietly made a move in early August that put them just under the luxury tax threshold, waiving JD Davison. Yeah, it was a minor transaction on the surface, with Davison on the roster’s fringe and a non-guaranteed salary for the 2026-27 season. But man, this is Houston we’re talking about, a franchise that has paid the luxury tax in only three seasons since 2002. Since owner Tilman Fertitta bought the team in 2017, they have paid it just once, and that was last season.
Playing Chicken With the Tax Line
Right now, the Rockets are sitting a tight $14,077 *under* the luxury tax, according to Spotrac. That’s razor thin, like they could sign a player to a minimum deal on the absolute last day of the regular season to fill an open roster spot and still keep their head above water. GM Rafael Stone is clearly thinking strategically here, because after last season, when asked about being in the tax for 2026-27, he said, “The roster, the way it’s set up, we very likely will be but all of that’s like – what contracts become available, what trades happen, all of this. I don’t see us, I don’t see Tilman ever wanting to take a step back that isn’t strategic.” This isn’t about avoiding team-building penalties, since those only kick in at the higher apron levels. This is all about the cash money, baby.
The Bill Is Coming Due
Why are they suddenly so close to the line after years of avoiding it? Simple. This team was rebuilding, and now those young players they brought in are earning their extensions. The bill is rising, and you know it. We’re talking about serious dough here. Teams pay different tax rates: $1 for each dollar above the threshold (which is a little over $200 million) up to about $6 million. Then it jumps to $1.25 for dollars between $6 million and $12 million, then a whopping $3.50 for each dollar between $12 million and $18 million. And it gets even crazier for teams in the “repeater tax,” which hits squads in the tax for at least four straight seasons or four out of five. Look at the Golden State Warriors; they are in their seventh consecutive luxury tax season, and if their salary balance holds, they will pay around $86 million in tax. If they weren’t repeater taxpayers, that figure would drop to about $47 million. That’s a massive difference, isn’t it?
What’s Next for Houston’s Wallet?
While the Rockets are a few years out from the repeater tax danger, avoiding those steep penalties is probably a huge reason they are trying to stay under the threshold *this* season. Because man, the future payroll is going to explode! Amen Thompson’s extension is kicking in soon, and he’s going from making about $12 million this season, the last of his rookie deal, to a staggering $36 million, $39 million, and $42 million in the first three seasons of his new deal. Think about that jump! Plus, Reed Sheppard is also eligible for an extension. The Rockets have some serious financial tightropes to walk in the coming seasons to keep their young talent and stay competitive without hitting those repeater tax levels. It’s going to be wild to see how Stone and Fertitta navigate this.
This article was created with AI assistance and published under Seattle On Tap’s editorial standards. See our Editorial Policy.
Originally reported by Yahoo Sports.
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