Disney Tax Overbilling Disclosed

Orange County tax officials revealed Tuesday that the value of Disneyland Resort had been significantly overestimated over a four-year period, resulting in a tax-refund windfall of several million dollars for the amusement park.

The errors, totaling more than $1.2 billion in over-assessments, occurred during a spate of construction from 1994 to 1997 during which, for example, a ride being dismantled was confused with one being built.

The largest error occurred during a four-year audit of Disneyland Resort’s real estate and property improvements by the assessor’s office. The county routinely conducts such audits of large businesses and property owners.

In the audit, the county wrongly increased the park’s value by $178 million in 1994, $149 million in 1995, $344 million in 1996 and $378 million in 1997, said county Assessor Webster J. Guillory.

The audit wasn’t sent to Walt Disney World Co. officials until July 2002, after which the combined billion-dollar error was caught by Disney property tax experts. The mistake was corrected by the county in February.

Separately, Disneyland Resort’s assessed value was overestimated by a total of $240 million from 1994 to ’97. Disney had challenged those figures as well, and last week the county’s tax assessment appeals board sided with the company.

Disneyland Resort’s assessed value during the period was overestimated by the county at amounts ranging from $598 million in 1994 to $690 million in 1997. Reducing those values by a total of $240 million will result in a tax refund for Disney of about $2.6 million.

Though the refunds to Disney haven’t yet been issued, most affected will be Anaheim, which gets about 11 cents of every property tax dollar paid by Disney. The city will have to give back about $290,000.

Anaheim officials said Tuesday they were aware of the pending refund but hadn’t yet been notified by the county.

Property tax refunds take about 60 days to be issued after being ordered by an assessment appeals board.

Anaheim school districts also will be on the hook for about $1.7 million, because schools get about 65% of each tax dollar. However, the refund ultimately will be paid by the state, not the school districts.

The county government would be responsible for the smallest share of a refund, about 7% or about $185,000. Other government agencies that receive part of the property tax will pay the rest.

Disney had not paid taxes on the $1 billion in the audit-generated over-assessments.

Guillory said that he knew there was a problem with the audit figures as soon as Disney protested the assessments. He told the company to hold off paying about $11 million in taxes on the disputed amount until he reviewed the numbers.

“I will tell you straight out that we made an error,” Guillory said. “There had been several years of construction, and we [assessed] some things twice. This was a unique situation.”

The issue isn’t over. The company is appealing its tax assessments for 1998 through 2003.

A Disney spokesman said the company was pleased that the discrepancies have been detected and corrected.

The mistakes affected real property and personal property at the park, as well as capital improvements.

In one year, for example, the company’s real property assessment was reduced from $42 million to $9.5 million.

The county is in the middle of another four-year audit for Disneyland Resorts, for 1998 through 2001.

At issue is how the county assesses a property such as Disneyland Resort, a process much more complicated than a conventional business because of frequent remodeling, construction and temporary enhancements that are built and taken down in the same year.

The company’s value is set every Jan. 1, based on its past year assessment, estimates of changes and other factors, Guillory said.

The county also audits the company’s property every four years, as it does with other large business parcels.

The audit is a more detailed look at the condition of the Disneyland Resort property, and changes are applied retroactively.

With Disneyland Resort, several years of construction confused an already complicated situation, Guillory said. The way certain improvements were reported, for example, made it appear they were new when, in fact, the improvements had just been moved from one area of the park to another.

The recent adjustments to Disneyland Resort’s values should provide a better picture for auditors and for next year’s assessment, he said.

“There’s nothing abnormal for us to have missed something,” he said. “I think we’ll have a pretty good picture for the roll next year.”

He couldn’t say when the county’s tax audit of Disneyland Resort for 1998 through 2001 would be finished; the audit began two months ago and could take up to a year.

Disney has routinely appealed its tax bills to protect its interests by assuring proper valuations, company officials said.

Its latest appeal, for the 2003 tax year, protests the county’s assessment for Disneyland of $829.7 million. The company has set the value at $739.1 million, a nearly $91-million difference.

The last refund issued to Disney was in January from an appeal of its 1997-98 tax bill. The refund totaled $203,700.

(BEGIN TEXT OF INFOBOX) Value judgment The Orange County assessor’s office said last week that it overestimated the assessed value of Disneyland by nearly $240 million from 1994 to 1997. An assessment appeals board ordered the company to be refunded about $2.6 million in taxes. The company has also appealed its assessments since 1998; the county is auditing those tax years.

Tax roll Year Assessed value Revised value correction 1994 $598,350,814 $535,378,337 $62,972,477 1995 634,443,613 596,515,225 37,928,388 1996 669,561,445 604,669,399 64,892,046 1997 690,140,662 616,525,706 73,614,956

Total $239,407,867

Source: Orange County Assessment Appeals Board