Star Wars: Return of the Tax Credit

A Star Wars expansion at Disneyland helps keep an entertainment fee at bay.

Long before Disney bought Lucasfilm in 2012, the Star Wars franchise had a significant presence in the former company's signature theme parks. Star Tours, a bouncy motion-simulation ride set in the Star Wars universe, premiered at Disneyland all the way back in 1987. Young kids can enjoy a Jedi "training" stage show at Tomorrowland in both the California and Florida parks, complete with the opportunity to prove their lightsaber supremacy against Darth Maul. Star Wars–derived merchandise can be found in park stores, complete with Disneyfied variations such as Mickey Mouse as Luke Skywalker and Goofy as Darth Vader.

While Star Wars lovers across the world celebrated news that Disney would resurrect the franchise in theaters, fans of the parks wondered what it would mean for the company's profitable Happiest Places on Earth. They got their answer in August, when Disney announced that entire "lands" would be constructed in Anaheim and Orlando devoted to all things Star Wars, complete with new rides and attractions.

In Anaheim, the news marks Disneyland's first major expansion since Mickey's Toontown opened in 1993. While rides in that park have seen technological upgrades and refurbishments, almost all expansion has been confined to Disneyland's next-door companion park, Disney California Adventure, which is dedicated to Hollywood themes and attractions inspired by Pixar movies.

While Disney was plotting out this new growth, an important tax deal with the city of Anaheim was approaching its sunset. In 1996, Disney and the Anaheim City Council struck a 20-year deal. The city would not apply an entertainment tax or "gate tax" on ticket sales to Disney parks, with the understanding that Disney would continue to expand and improve. It was under this agreement that Disney built California Adventure, which opened in 2001.

In 2015, Disney sought to extend the tax exemption, again with the promise that it would grow. In July (before the Star Wars expansion was formally announced), the City Council voted 3–2 to extend the ban on gate taxes for another 30 years, provided that Disney spends $1 billion on new attractions and a new parking garage. The expansion has to begin by 2017 and be completed within seven years. If Disney can come up with an additional $500 million project, it can extend the exemption for another 15 years. There are rumors that Disney wants to add more to the California Adventure park, possibly related to its ownership of Marvel comics and heroes. If such a plan comes to fruition, that could account for the additional project.

The Disneyland parks are already a huge source of tax revenue for the city. Officials for both the park and Anaheim told Reuters that Disney, which sprawls over 157 acres within the city, paid $56 million in property, sales, and hotel room taxes (Disney owns three of the many hotels next to its California parks) in 2014. The taxes paid by the restaurants and shops and non-Disney hotels that surround Disneyland no doubt provide millions more.

Disney has a reputation for negotiating itself all sorts of tax credits and outright subsidies. The company has snagged plum deals from redevelopment agencies in California, and it has redirected tax-exempt bond money toward its projects in Florida. Anaheim is currently considering a streetcar project with a price tag of more than $300 million—one of the costliest trolley plans in America—primarily to serve the parks. And then there's the hundreds of millions of dollars the company enjoys in film credits and production subsidies, offered by both the federal government and the states.

But there's an important detail that makes the city's tax break a little bit different: Anaheim currently does not have an entertainment tax or "gate tax" at all. No entertainment venue in the city is currently required to charge an additional fee or tax for entry. So Disney isn't actually getting any sort of special deal here. If Anaheim actually does attempt to implement a gate tax, the city will have to refund any money taken from Disney's customers back to Disney. There's no sign that Anaheim has any intent to implement such a tax, and it would require a public vote to do so.

Anaheim Mayor Tom Tait voted against the extension of the tax exemption, arguing that the city was giving up a potential source of revenue that could help it fix other problems, like its $500 million in underfunded pension obligations. "This just shouldn't happen," Tait said when he voted no. "I think, down the road, people will rue this day. Other people will look at us and say that we gave away the people's right to vote" for the new tax.

But the mayor's got it backward: Anaheim citizens shouldn't risk a good deal—for not just Disneyland but all entertainment-oriented businesses in town—just to help the city fix the mistakes of its own making.