Possible IRS Troubles Ahead for WDW/RCID

[maxairmike]

This could be a very big, very costly turn of events, and the first real challenge to Disney's special district status and advantages since it was approved. Color me extremely interested. Certainly explains why Disney has had a sudden interest in tax specialists/lawyers/consultants...

 

[lazyboy97o]

This could be a very big, very costly turn of events, and the first real challenge to Disney's special district status and advantages since it was approved. Color me extremely interested. Certainly explains why Disney has had a sudden interest in tax specialists/lawyers/consultants...

I don't see how. The District handles a lot of areas that are state and local concerns, not federal. The IRS can disagree with the district and deny federal tax exemption, but they cannot nullify its existence or the handling of other concerns.

 

[Tim_4]

Nothing to see here. This has been litigated before. Disney and RCID are independent of one another, legally. The Sentinel is notoriously anti-Disney and this article serves no purpose other than to stir the pot.

 

[ParentsOf4]

I don't see how. The District handles a lot of areas that are state and local concerns, not federal. The IRS can disagree with the district and deny federal tax exemption, but they cannot nullify its existence or the handling of other concerns.

From the article:

But what the IRS ultimately objected to was the way the CDD's governing board was set up.​

​

...​

​

"We believe that an entity that is organized and operated in a manner intended to perpetuate private control, and to avoid indefinitely responsibility to a public electorate, cannot be a political subdivision of a state," the IRS wrote in its ruling.​

The IRS isn't merely questioning the tax-exempt status of some bonds but the form of "government" created to issue those bonds.

Obviously, the IRS can pursue the matter through the Courts if WDW decides to fight. This includes Federal Courts that are not in Disney's back pocket, the way Florida's government is.

 

[maxairmike]

I don't see how. The District handles a lot of areas that are state and local concerns, not federal. The IRS can disagree with the district and deny federal tax exemption, but they cannot nullify its existence or the handling of other concerns.

I think the bonds and tax statuses are the biggest advantages for Disney, and this could be a direct challenge on those advantages. Look at the I-4 ramps and expansions, Osceola Parkway, and more. These are things that will directly impact Disney financially because the bonds will become more expensive through tax increases by RCID to pay interest. Do you think Disney Springs would be going through if they weren't using the bonds to finance the massive and expensive infrastructure upgrades via the RCID?

 

[Tim_4]

I think the bonds and tax statuses are the biggest advantages for Disney, and this could be a direct challenge on those advantages. Look at the I-4 ramps and expansions, Osceola Parkway, and more. These are things that will directly impact Disney financially because the bonds will become more expensive through tax increases by RCID to pay interest. Do you think Disney Springs would be going through if they weren't using the bonds to finance the massive and expensive infrastructure upgrades via the RCID?

Disney writes a big check to the state for I-4 maintenance, above and beyond their normal state tax bill. It's called the "I-4 Fair Share" program. The road agreements are a net benefit to the state, regardless of RCID's ability to float tax-free bonds.

Also, tax-fee bonds happen literally all the time. If your town has a shopping mall, it's 99% likely that the parking structure and all the roads to get there were not only paid for by the town, but paid for using tax free municipal bonds.

 

[OFTeric]

But where the Villages and RDID differ is that over 100,000 people live at the villages.

 

[Killnme]

As @lazyboy97o alludes to in mentioning Married to the Mouse, RCID gives WDW some incredibly unfair business advantages. WDW basically has its own government with, for example, its own building code. WDW might never have been built if it had to navigate the "normal" local government approval process. Perhaps more than anything, this is what Walt and Roy wanted to be able to avoid when they negotiated the move to Orlando.

There have been many laws created by local governments later ruled by the Courts to be "unfair" and overturned. Ultimately, the IRS doesn't care about RCID. It wants its money and it doesn't care what legislation the State of Florida passed in 1965. If the IRS moves forward on this, look for WDW to work out a financial compromise without actually giving up its autonomy.

That's the book Married to the Mouse. It gave great insight on how the Florida Project was created and carried out.

 

[ParentsOf4]

But where the Villages and RDID differ is that over 100,000 people live at the villages.

Sure but how can RCID claim to be a local "government" when it has no permanent citizens and its few residents are hand-picked by The Walt Disney Company?

I'm not suggesting the IRS will want to instigate a drawn-out court proceedings against TWDC, only that if the IRS comes knocking, TWDC would be wise to settle with the IRS to avoid a legal battle that could, in a worst case scenario, result in the complete elimination of RCID. TWDC has compromised in the past with local and state government. No need to get into an ugly dispute with the Federal Government if all they are looking for is tax revenue. They will wrangle and argue but, ultimately, it's not in TWDC's best interest to fight this in Federal Courts.

 

[Darth Sidious]

Interesting and bad for Disney since this was one of the reasons why they choose central Florida... They had this district and the attached perks. Disney will have to issue at corporate rates, anyone know what their past bond offerings have been from Reedy Creek? What was the APY?

 

[Darth Sidious]

Sure but how can RCID claim to be a local "government" when it has no permanent citizens and its few residents are hand-picked by The Walt Disney Company?

I'm not suggesting the IRS will want to instigate a drawn-out court proceedings against TWDC, only that if the IRS comes knocking, TWDC would be wise to settle with the IRS to avoid a legal battle that could, in a worst case scenario, result in the complete elimination of RCID. TWDC has compromised in the past with local and state government. No need to get into an ugly dispute with the Federal Government if all they are looking for is tax revenue. They will wrangle and argue but, ultimately, it's not in TWDC's best interest to fight this in Federal Courts.

In the same token... A few campaign contributions can sure smooth these things out. Disney is a powerful lobbyist, it might not be in the IRS's plans either. Either way... I hate the IRS. This country LOVES debt... The tax code forces debt load over equity load. Disney might not be too upset since they can write the interest off.

 

[Skyway]

in the end it is an unfair competitive advantage that Disney has over it's competitors.

Competitive advantage? Absolutely.

Unfair? Nope.

As others have pointed out, the Florida legislature approved it. Why? Disney had the power to create a new tourism industry in Florida. If FL said no, Disney would have gotten a similar deal elsewhere, and Orlando would still be a sleepy swamp town.

As for Disney's "competitors", they continue to ride Disney's coattails in the Central Florida market because of the RCID deal. If there was no WDW, there would be no Universal, SeaWorld, Legoland, or even Funspot in Orlando. There's a reason Universal chose to build in Orlando instead of Omaha, or even Miami. RCID helped create the tourism industry that Universal now taps (and all those other competitors flocking to surround Disney vindicates the legislature that took a gamble that Disney would be an enormous economic driver)

As some else pointed out, the competitors are free to seek the same benefits as Disney did in the 60s. But they need to bring something to the table for that state. It's doubtful any of them have the clout Disney did in the 60's (and would Disney even have that same clout today?)

 

[flynnibus]

I don't see how. The District handles a lot of areas that are state and local concerns, not federal. The IRS can disagree with the district and deny federal tax exemption, but they cannot nullify its existence or the handling of other concerns.

+100

The IRS can make claims about tax status but it has no jurisdiction or standing to make rulings about rcid's existence or legality... Nor do most of the Feds

 

[flynnibus]

From the article:

But what the IRS ultimately objected to was the way the CDD's governing board was set up.​

​

...​

​

"We believe that an entity that is organized and operated in a manner intended to perpetuate private control, and to avoid indefinitely responsibility to a public electorate, cannot be a political subdivision of a state," the IRS wrote in its ruling.​

The IRS isn't merely questioning the tax-exempt status of some bonds but the form of "government" created to issue those bonds.

Obviously, the IRS can pursue the matter through the Courts if WDW decides to fight. This includes Federal Courts that are not in Disney's back pocket, the way Florida's government is.

They need jurisdiction. Rcid's existence and scope are things within the states control... Not federal. Limited government...

 

[englanddg]

Oh, you mean that pesky 10th amendment.

That doesn't matter with respects to Federal Taxation. Due to the 16th amendment.

 

[GrumpyFan]

+100

The IRS can make claims about tax status but it has no jurisdiction or standing to make rulings about rcid's existence or legality... Nor do most of the Feds

Right, the districts are planned and controlled by the state legislature.

 

[StarWarsGirl]

Thanks for posting.

I'm not going to debate on something I know little about, but fascinating to say the least.

 

[GrumpyFan]

As @lazyboy97o alludes to in mentioning Married to the Mouse, RCID gives WDW some incredibly unfair business advantages. WDW basically has its own government with, for example, its own building code.

Not true. Disney does not have their own building codes. They have to abide by the state's building codes and they have to file with the state what they're planning. They do have their own local government, but I think they also are part of the county jurisdictions for Orange and Osceola, so, they're not entirely free to do whatever they want. But, because of their size and local revenue they help generate, they are probably given a lot of lee-way on things.

 

[Pixiedustmaker]

Do you think Disney Springs would be going through if they weren't using the bonds to finance the massive and expensive infrastructure upgrades via the RCID?

Yes.

Disney still has to pay back principal when the bonds mature, plus interest, to the investors (I would institutional players mostly). It is attractive for them as the interest payments are tax-free, at least in terms of federal taxes, being a tax-exempt municipal type bond, and this makes the bonds attractive.

Disney can afford to simply pay cash for Disney Springs, but by issuing bonds, they can put that $360 million into the next John Carter or Lone Ranger that much faster. Of course, Disney Springs has pretty much a guaranteed income stream, unlike movies. In essence, Disney Springs bonds lets Disney waste money in other ways, lol.

The tax-exempt angle I would guess is mostly for the investors, but I doubt Disney will have trouble finding investors, the chances of RCID defaulting is less than the chance of some cities (like Detroit) going bankrupt.

Maybe, if Disney loses tax-exempt status, then some investors will demand a higher interest rate in exchange for having to pay federal taxes on interest payments (the horror). But I kinda doubt it, the bonds are still a very safe place to park your money. Disney has warned Disney Springs investors that their interest payments might be taxed by Uncle Sam.

 

[Pixiedustmaker]

Not true. Disney does not have their own building codes. They have to abide by the state's building codes and they have to file with the state what they're planning. They do have their own local government, but I think they also are part of the county jurisdictions for Orange and Osceola, so, they're not entirely free to do whatever they want. But, because of their size and local revenue they help generate, they are probably given a lot of lee-way on things.

Uh, yeah they do. (Walt didn't envision four theme parks, hotels and water parks . . . just a Magic Kingdom and a working, experimental city, where new industrial ideas would get a test drive.)

The EPCOT codes (building, electrical, fire . . .), are meant to be actually more comprehensive than the "traditional codes". This was one of the main reasons for the EPCOT codes, so that the company could rapidly innovate and develop, on their own, codes for new technologies and novel situations, and of course to exceed normal codes in terms of safety.

http://www.rcid.org/DoingBusiness/BuildingCodes/EPCOTBuildingCodes.aspx

Codes are codes, nobody should be given a break because of their size or local revenue . . . that's not how things work with codes. The Trump Tower doesn't get a break on building code violations because Donald Trump is famous . . .