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Loophole is allowing Disney to avoid taxes

ORLANDO — Disney is avoiding some state and local taxes in Florida by selling theme park tickets and other items to itself.

According to former company officials familiar with the practice, Walt Disney World sells large quantities of tickets, hotel rooms, meal plans and other components at wholesale prices to another Walt Disney Co. subsidiary. That unit — the Walt Disney Travel Co. — then assembles the items into complete vacation packages and sells them to travelers at a higher retail price.

Disney collects and pays taxes only on the discounted price that Disney Travel Co. pays to Disney World — instead of on the price that consumers pay.

Vacation packages are an enormous business for Disney World, whose theme parks draw more than 45 million visitors a year. Company executives have said in the past that Disney Travel Co. is the second-biggest tour seller in the United States, even though it sells only Disney vacations.

The tax savings are apparently substantial: Disney World avoids several million dollars a year in Florida sales and hotel taxes by calculating the taxes based on wholesale prices, according to one of the former company officials, who spoke only on the condition of anonymity for fear of retaliation from Disney.

The vacation package transactions are legal, thanks to a state law initially adopted because of concerns that Florida was losing revenue in cases of out-of-state companies selling Florida vacations but not collecting or paying the taxes. Disney is not the only Florida business to benefit from the law: Universal Orlando also sells tickets to a company subsidiary — Universal Parks & Resorts Vacations Inc. — that then sells vacation packages to the public.

Disney would not discuss its vacation package business in any detail. The giant resort says it is Central Florida's largest single taxpayer, paying $566 million a year in combined state and local taxes.

"We support efforts that keep Florida competitive in the vacation marketplace and will continue to offer a variety of convenient vacation packages that bring visitors to Central Florida," Disney spokeswoman Andrea Finger said.

A spokesman for Universal Orlando said its vacation package subsidiary "was created to help us communicate directly with consumers about the Universal Orlando experience and offer travel packages that reflect the best value we have to offer at value-driven pricing. Beyond that, we don't generally comment on business strategies or financial issues such as this."

The theme parks' practice is similar to hotel room rentals by online-travel companies such as Expedia and Orbitz Worldwide, which negotiate bulk rates with hotels, charge higher prices to consumers and then remit taxes only on the lower room rates. Counties across Florida have sued the Internet companies in attempts to collect unpaid taxes on the rooms' retail prices; Disney has been helping the online-travel industry lobby the Florida Legislature for protection.

Critics of the practice say businesses should not be able to use internal sales to deflate the taxable value of their products. They say the vacation package sales are an example of the many exemptions and loopholes that dot Florida's tax code at a time when political leaders across the country are debating spending cuts and tax overhauls.

"That is a loophole that needs to be fixed," said Tom Drage, a former Republican state legislator and Orange County attorney, who spent several years battling the online-travel industry over its tax practices.

Loophole is allowing Disney to avoid taxes 05/27/11 [Last modified: Friday, May 27, 2011 10:12pm]
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