The Happiest Place on Earth? A Look Inside Disney’s Tax and Non-Tax Battle with the State of Florida
On April 22, 2022, Florida Governor Ron DeSantis signed a bill that strips Walt Disney Company of its special status that previously allowed it to function as its own municipal government. This move marks the culmination of a recent feud between the state of Florida and one of its largest and most recognizable companies. But what does the bill mean for Florida residents’ and Disney’s taxes? Poole College accounting professors Nathan Goldman and Christina Lewellen take a closer look.
Why are Florida and Disney at odds with one another?
The relationship between the state of Florida and Walt Disney Company has been a seemingly perfect match since Florida opened its doors to the company in the 1960s to create what is now known as Disneyworld. In celebrating its 50-year anniversary, one study estimates that Disney brings $75.2 billion in annual economic impact – along with 463,000 jobs and $5.8 billion in additional state tax revenue. Recently, however, Florida legislators are at odds with Disney after the company has publicly spoken out against recent legislation, including the state’s so-called “Don’t Say Gay” bill, as well as the “Stop WOKE Act.” Disney has recently undertaken changes to its films and parks to provide a more inclusive environment – and the company has publicly opposed these bills as a part of its inclusion initiative.
Is this battle between a corporation and politician the first of its kind?
Far from it. Apple, Salesforce and Eli Lilly opposed a bill in Indiana related to discrimination against the LGBTQ community. Delta and Major League Baseball took a stand against Georgia for their more restrictive voting laws. And Citigroup took a significant stand against the state of Texas for its recent abortion law. A common matter among these corporate oppositions is a growing trend in the American geopolitical landscape that U.S. corporations are increasingly siding with policies that favor diversity, equity and inclusion – putting them at odds with strongly conservative political views. Different from these other examples, Florida is taking swift and concrete actions against the Walt Disney Company because of the political battle.
Does Disneyworld currently receive tax benefits from Florida?
In the 1960s, in an attempt to allure and entice Disney to locate its second theme park in central Florida, the state of Florida provided Disney with a special economic enhancement status called the Reedy Creek Improvement District. This status allows Disney to effectively function as its own county government, including running its own fire department and managing its own building codes, utilities and roads. In addition to Reedy Creek providing most of its own services, it also taxes Disney to raise funds necessary to maintain the land and community services necessary to keep the magic of Disneyworld alive. Due to the special designation, Reedy Creek can and does levy more taxes on the Walt Disney Company than Florida generally allows counties to tax entities. In fact, Reedy Creek taxes Disney at a rate of about three times the general rate for other Florida jurisdictions. Reedy Creek also has public bonds issued, to which Disney receives a bill each year to make the annual payments.
Thus, one thing that does not convey to Walt Disney Company through the creation of the Reedy Creek Improvement District is lower taxes. Walt Disney Company continues to pay its typical tax obligations at the federal and local levels – and it also must be the sole provider for the obligations associated with the operations of the Reedy Creek Improvement District, thereby leading to more taxes levied than they would otherwise pay if the district was not in place. In turn, Disney receives full autonomy over how this region operates. While there are benefits to this control (i.e., ease of constructing new buildings, rides, improvements, etc.), lower taxes are not one of these benefits. Since Disney maintains its own services and infrastructure, which are generally services provided by governments that are funded by tax payments, one could view Disney’s costs of maintaining public services as an additional indirect tax burden.
What happens if the Reedy Creek Improvement District is dissolved?
With the passage of Friday’s bill, Florida agreed to revoke the special district effective June of 2023. The Reedy Creek Improvement District is located in Orange and Osceola counties in the Orlando area of Florida. Upon the bill’s effective date, Disney will now be at the hands of these two counties that will now be responsible for everything that Reedy Creek currently maintains, including roads, utilities, and services. Importantly, Disney should not experience an increase in property taxes paid to Orange and Osceola due to the dissolution.
On the contrary, Disney will likely experience a tax decrease since they will now pay tax at the maximum rate in the neighboring counties like other entities in the area. In addition, Disney will likely also experience an effective decrease in indirect taxes since the burden of maintaining Disneyworld’s services and infrastructure will now be shifted to the local counties that cannot levy the same amount of taxes against Disneyworld as the special district can. Therefore these counties will enter into a situation with significantly higher expenses without a corresponding increase in revenues. While it is still unclear, many already speculate that the tax burden of providing these services to Disney will fall predominantly on other taxpayers. Those counties will also now be responsible for Reedy Creek’s bonds. The bond rating agency Fitch has recently placed the bonds on a watch for a possible downgrade due to the uncertainty over whether and how these will be repaid as a result of the Reedy Creek dissolution.
Are there any other potential impacts?
Also at stake is Walt Disney Company’s decision to move its new corporate campus to Lake Nona, FL. The announcement of their new campus reflects a significant investment in the Orlando area. Specifically, the company expects to employ 2,000 people at an average salary of $120,000 per year, while also investing $864 million in office construction, supplies, and software improvements. A reason why Walt Disney Company chose Lake Nona is that it is near its flagship theme parks and the beneficial tax and political environment the company typically enjoys in Florida. This notion is demonstrated by the $578 million in tax credits the state of Florida offered to the Walt Disney Company to entice them to choose Florida for this investment. However, if the Reedy Creek Improvement District is dissolved, then Walt Disney Company may explore other opportunities. In fact, the Governor of Colorado has already taken to Twitter to publicly sway Disney to consider his state for the company’s new headquarters. As demonstrated by other high-profile moves like Amazon to Virginia or Apple to North Carolina, many other studies would likely be interested in providing significant tax benefits to help persuade a company of Walt Disney’s magnitude to make a significant investment in their state.
While there is still much uncertainty about what exactly will happen if the Reedy Creek Improvement District is dissolved, one clear trend appears to be emerging – the Walt Disney Company will not pay additional taxes and, in fact, may benefit from paying less in the short run than it would if it were still maintaining the service and infrastructure costs of the Reedy Creek Improvement District. Instead, much of the additional tax burden will be spread out over the current individual and corporate entities that make up Orange and Osceola counties.