Disney & Universal Sales Tax Tricks

[nytimez]

Looks like both companies save on sales tax by selling vacation packages to themselves at a lower price before selling them back to the public. They only have to pay tax on the first price, the one it sold to itself, and not the one actually charged to consumers:

Link:

Disney cuts taxes by selling tickets to itself

 

[lockedoutlogic]

All accounting practices were deemed "fair game" by the landmark Gas-Stinkell Act of 1985...

It proved that the market is always self-correcting and its how we beat the Russians...

Thanks, Gipper

 

[TisBit]

The ability for Disney/Universal to operate their own subsidary travel companies have allowed them to stay competitive in the market.....a main reason that Disney/Universal packages do not fluctuate greatly in price. If they did not permit it, then companies like Orbits or Priceline would be able to offer package discounts that the company wouldn't be able to itself.

If they raise the taxes on all companies, trust me, that cost will just be passed on to the consumer. Our government officials like to make sound bites villifying about how profitable a company is and the tax breaks they receive, ending with threats to remove the tax breaks. But, in the end, those increases in tax will be passed on to the consumer, not taken out of the profit line. Look at all the fees, taxes, etc in almost everything you have (rental cars, gasoline, cell phones, land lines, cable bills, etc). No company will absorb these costs or taxes.

 

[Cheshire Figment]

I think this is being done to get the state law changed. It is the 2x4 being used to hit a mule over the head.

At the current time some of the giant online travel companies, such as Expedia and Travelocity, have been ripping off their customers and cheating the state.

Let's say they buy a hotel room night for $100 and sell it to a customer for $150. At this time they are charging the customer sales tax of $18.75, for a total of $168.75. However, they are only sending $12.50, which is the tax on $100 to the State of Florida. The extra $6.75 is pure profit to them.

The invoice to the customer shows $18.75 as tax, which is what they would pay if they paid $150 directly to the hotel. Even though they tell the customers it is a tax, they are telling Florida (and other states) that the difference is a service charge.

Disney and Universal, as well as major hotel chains such as Hilton and Marriott, have been trying for several years to get the state to require companies which charge a sales/resort tax to remit the tax (less allowable deductions) based on the price they charge the consumer. And since the legislature has not taken any action (and many states do require this) they have decided to force the issue.

 

[Faldred]

Let's say they buy a hotel room night for $100 and sell it to a customer for $150. At this time they are charging the customer sales tax of $18.75, for a total of $168.75. However, they are only sending $12.50, which is the tax on $100 to the State of Florida. The extra $6.75 is pure profit to them.

The invoice to the customer shows $18.75 as tax, which is what they would pay if they paid $150 directly to the hotel. Even though they tell the customers it is a tax, they are telling Florida (and other states) that the difference is a service charge.

I'm sure they've found the legal loopholes to do this, but this practice comes across as fraud to me -- they are representing to the customer that it's sales tax, but they're collecting more than the sales tax charged? It's morally wrong even if it's legally proper.

 

[nytimez]

The ability for Disney/Universal to operate their own subsidary travel companies have allowed them to stay competitive in the market.....a main reason that Disney/Universal packages do not fluctuate greatly in price. If they did not permit it, then companies like Orbits or Priceline would be able to offer package discounts that the company wouldn't be able to itself.

If they raise the taxes on all companies, trust me, that cost will just be passed on to the consumer. Our government officials like to make sound bites villifying about how profitable a company is and the tax breaks they receive, ending with threats to remove the tax breaks. But, in the end, those increases in tax will be passed on to the consumer, not taken out of the profit line. Look at all the fees, taxes, etc in almost everything you have (rental cars, gasoline, cell phones, land lines, cable bills, etc). No company will absorb these costs or taxes.

This makes absolutely no sense on so many levels. Disney has to sell its own packages to itself, avoid paying taxes through a loophole, in order to stop other companies from selling Disney's own packages at a lower rate?

Just curious -- where are those other companies getting those packages from? Did they sneak into Disney Reservations late at night and steal them? Black market? Computer hackers?

And let's not turn this into an argument about raising/lowering taxes. This is about two major companies (and, as Cheshire Figment points out, bargain outfits) NOT paying the taxes already on the books -- but charging them to consumers just the same and pocketing the difference.

 

[TisBit]

This makes absolutely no sense on so many levels. Disney has to sell its own packages to itself, avoid paying taxes through a loophole, in order to stop other companies from selling Disney's own packages at a lower rate?

Just curious -- where are those other companies getting those packages from? Did they sneak into Disney Reservations late at night and steal them? Black market? Computer hackers?

And let's not turn this into an argument about raising/lowering taxes. This is about two major companies (and, as Cheshire Figment points out, bargain outfits) NOT paying the taxes already on the books -- but charging them to consumers just the same and pocketing the difference.

If you read the article and understand the point. Before the law was passed, out of state companie and online companies were not paying florida their tax at all. They passed the law requiring them to pay that tax (based on what they paid for the room from Disney, either wholsale or retail). If Florida did not allow Disney to create their own subsidary, yes, in the end a AAA room would have had less tax on it than a disney room, because they bought bulk rooms at a discount, thus a lower taxable rate.

Disney/Universal are not accused of defrauding customers by passing a higher tax rate, their packages are listed as tax included. Disney is allowed to sell bulk rooms at wholesale costs to repackage them out, just like AAA (or others do). The flip side of this, is the income the state receives might not be that far off. With the tax being paid on the wholesale costs, the travel agency must pay a tax on all rooms purchased from disney. If they only have to pay a tax on the room when they rebook it to the customer, some rooms will go empty during that time and the state will receive no tax for the room, even though the travel agency had it reserved. It is much more complicated than the article attempt to make it.

I agree that companies should not be able to charge a tax rate that is different than what is paid and most likely a class action lawsuit is in order. One of the phone providers were in a similar situation where they passed fees to consumers under a "tax" line, but were not in fact taxes. Unfortunately, these class actions give the lawyers all the money and the people who paid get a gift card or something similar.

 

[nytimez]

If you read the article and understand the point. Before the law was passed, out of state companie and online companies were not paying florida their tax at all. They passed the law requiring them to pay that tax (based on what they paid for the room from Disney, either wholsale or retail). If Florida did not allow Disney to create their own subsidary, yes, in the end a AAA room would have had less tax on it than a disney room, because they bought bulk rooms at a discount, thus a lower taxable rate.

I'd like to think I'm a pretty good reader. I understood it pretty well. You're still missing the point -- Disney doesn't have to undercut its own business by selling AAA those packages at the reduced rate in the first place. If they wanted to compensate for the tax difference, they'd just raise the wholesale price of the packages by X percent. AAA (or any other in-state or out-of-state third party company) doesn't set the wholesale price -- Disney does. It's their product, and there's no other way to get it except from them.

 

[DVCconvert]

All accounting practices were deemed "fair game" by the landmark Gas-Stinkell Act of 1985...

 

[lockedoutlogic]

For the record...the idea that they have to do this to keep the vultures at priceline and expedia at bay is completely false.

disney wholesale chooses who they sell their packages to for resale and at what price...it not like somebody from priceline can come in and bid on them. So they sell a package of rates at a slightly discounted price to a travel agency...they jack up the price to the original rate and the difference is their fee/ profit.

That's how it works...or at least at WDW where i happened to look at this every day for years.

To repeat: WDW Wholesale sells the packages at a certain price that would then be turned around and offered by AAA/ Liberty Travel, etc..
So the only way to be "undercut" if your disney is if your buyers then sold the package at cost and made a grand total of 0 on the sale...therefore actually losing money due to labor and overhead costs.

That is why the price is always the same and the beautiful succinct but thoroughly incorrect explanation that they are screwing the tax code to keep from being carrion to the big mean pricelines of the world does not hold...

This is also why you can't get a room at the poly on priceline for 109 a night - because ultimately all things sold by disney still originates and goes through disney...and they aren't going to make the waters friendly for sharks.

 

[TisBit]

I'd like to think I'm a pretty good reader. I understood it pretty well. You're still missing the point -- Disney doesn't have to undercut its own business by selling AAA those packages at the reduced rate in the first place. If they wanted to compensate for the tax difference, they'd just raise the wholesale price of the packages by X percent. AAA (or any other in-state or out-of-state third party company) doesn't set the wholesale price -- Disney does. It's their product, and there's no other way to get it except from them.

But the point is, yes Disney could not give any wholesale price and only have rack rates. But, if they want to sell wholesale and the state did not allow them to have a subsidary, then the law would allow the third party to pay the lower tax rate.

The state has to decide, do they want to tax each room sold (at the wholesale rate when it is sold) or do they want to tax each room which is occupied (at the resold package rate). If the people who buy wholesale don't pay tax on that lower cost, but also don't rent the room out, then Florida would not receive any tax. Sometimes law makers don't pay attention and could cost their state more in tax revenue than they save. Disney is not allowed by law to sell themselves a room at a lower rate than other wholsalers.

The advantage to wholesale rooms is that Disney can book a resort, regardless of occupancy. AAA will have to pay for those rooms regardless of if they resell them. The other part of this is that, every resort/hotel in florida sells their rooms wholesale and the wholesalers all pay the lower tax rate. This is not a disney/universal thing, but just a law that Florida has that some people are now upset about.

 

[lockedoutlogic]

But the point is, yes Disney could not give any wholesale price and only have rack rates. But, if they want to sell wholesale and the state did not allow them to have a subsidary, then the law would allow the third party to pay the lower tax rate.

The state has to decide, do they want to tax each room sold (at the wholesale rate when it is sold) or do they want to tax each room which is occupied (at the resold package rate). If the people who buy wholesale don't pay tax on that lower cost, but also don't rent the room out, then Florida would not receive any tax. Sometimes law makers don't pay attention and could cost their state more in tax revenue than they save. Disney is not allowed by law to sell themselves a room at a lower rate than other wholsalers.

The advantage to wholesale rooms is that Disney can book a resort, regardless of occupancy. AAA will have to pay for those rooms regardless of if they resell them. The other part of this is that, every resort/hotel in florida sells their rooms wholesale and the wholesalers all pay the lower tax rate. This is not a disney/universal thing, but just a law that Florida has that some people are now upset about.

the difference between the price of one wholesale rate package and the corresponding rack rate is a very small percentage...it basically functions as a TA percentage as in olden days to make it worthwhile for the local agents to push the WDW packages and on property resorts as opposed to bundling off property features and competitors parks into broad scope vacation packages. It is also why they can't be undercut and cannibalized by third parties. They sell a TA the package at a slight discount...then they turn around and sell the package at retail. There really is no play in the costs.

Disney gets either 93% of the money...or 100% of the money...that's how it goes...and why some travel services just won't ever feature disney product

As it pertains to this particular discussion...you are talking about tax on a relatively small amount of the sale. And it does add up...but florida is almost solely dependent on travel taxes...they have to shut up and take it. I weep not for them...they've granted special loopholes on all fronts for decades...notably to Disney. But they subscribe to the moron's credo: Give everybody a tax break or no tax and they'll somehome get it back to you out of the goodness of their hearts. Uh huh.

But you are correct that disney loves the wholesale business...they sell pets to owners without homes. AAA buys a big block and pays disney...then they can wash their hands of it. They may show and buy junk in the giftshops...or they may not show and then we can cut the staffing.
Gravy! Gravy! Gravy!