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WWE Chief Financial Officer Explains Connecticut Tax Dispute and Resolution

Published October 17th, 2012, Uncategorized

Earlier today I published a document I had acquired about a $4.4 million settlement of WWE Inc.’s tax bill with the state of Connecticut. This afternoon WWE spokesman Brian Flinn set up a conference call for George Barrios, the company’s chief financial officer, to explain the scenario to two reporters who had made inquiries about it: Daniela Altimari, a political reporter for the Hartford Courant, and myself.

I’ll convey as best I can what Barrios said to me. This is technical stuff, but let me underscore upfront that I do not believe, after all is said and done, that this story has special implications for the Senate race between ex-WWE chief executive Linda McMahon and Congressman Chris Murphy. The tax dispute is just a day in the life of a billion-dollar corporation. WWE and Connecticut had approximately a $1 million-a-year difference of opinion, and ultimately decided to split the difference.

As Barrios explained it, there are two basic methods for calculating state taxes of corporations that operate nationally or even internationally (WWE does business in all 50 states and in about 50 countries). One is simply to calculate sales within the state — the so-called “single-factor” method.

Connecticut is among the majority of states that use a “multi-factor” approach, which generally results in higher corporate tax liabilities. Rather than just interpolating sales within the state, the multi-factor method requires the calculation of sales volume, number of employees, and size of assets for the company within the state, and weighing them in proportion to the universe of sales volume, employees, and assets.

Though Connecticut is a multi-factor state, its tax code also has a “broadcaster exemption,” which allows companies in the broadcasting industry to default to the single-factor method. (It is easy to speculate that ESPN, based in Bristol, Connecticut, is behind the broadcaster exemption.) WWE held the position that, while it markets across multiple platforms (live arena events, magazines, merchandise, Internet, etc.), it is currently, at its essence, a company in the business of purveying content for broadcast television. The state of Connecticut disagreed with WWE’s interpretation of ambiguous language in the tax code regarding this.

Barrios said WWE considered litigating the dispute but ultimately worked out a compromise with the state. Using very round numbers, Barrios estimated that a single-factor tax calculation would yield an annual state tax bill for the company of approximately $1 million. Under multi-factor calculation, it would be around $2 million. The $4.4 million settlement in the document I published earlier represents the two sides’ agreement to set the figure in the middle. So that’s around $500,000 annually over and above what WWE already had paid for the years from 2005 through 2010, plus penalties and interest. The “going forward methodology” cited in the WWE document is a stipulation by the two sides that, in future years, there will be an agreed-upon mix of single- and multi-factor methods in the calculation of WWE’s Connecticut taxes.

As I said, this is not material for people like me, whose stock-in-trade is manipulating credit card balance transfer offers. It’s the kind of thing lawyers and accountants are paid to work out to the best advantage of their corporate clients. Its importance in the context of the McMahon Senate bid is incidental at best. If other journalists were to come up with evidence that WWE got a sweetheart deal here, I’d be sympathetic to that argument and publish the evidence, but it’s not there in the current known base of facts.

In our phone conference, I asked Barrios if WWE had given any thought to who had leaked the document to me, and why. He said he had not, and turned the question back on me. I said that I thought the leaker must have been a disgruntled employee, whose purpose was either to embarrass the McMahon campaign or, divorced from electoral politics, to embarrass WWE generally. I also noted that I had appropriately disclaimed this possibility in my original post and given publication of the document fair context, and Barrios agreed.

In keeping with my mischievous streak, I couldn’t resist asking a final, narcissistic question. WWE had not responded to a query by me in years, unless you count the periodic blustery letter by its lawyer, Jerry McDevitt. In 2010, WWE also was quoted in Connecticut media as saying that it did not respond to anything written or said by me. So did today’s conference call mean that Vince McMahon and friends were changing their Muchnick policy?

WWE’s Flinn assured me that it did not — that this was a one-time initiative by a publicly traded corporation to clarify a report on its financial affairs. For my own “going forward methodology,” I suppose I’ll have to enlist CM Punk.

Irv Muchnick