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WWE rightly spooked that its tax affairs will affect Linda McMahon's senate campaign

Linda McMahon's fourth and final debate with Chris Murphy was devoid of any new news - the big story of the day was the Democrats attacking WWE in the local media for cheating Connecticut taxpayers while taking $22 million in tax credits from the state. WWE soon responded with a press release trumpeting how they pay their taxes, robustly defending themselves from the allegations of impropriety.

Vince McMahon has now gambled almost $80 million on his wife's political aspirations, maybe that's why WWE's tax history is now such a big campaign issue?
Vince McMahon has now gambled almost $80 million on his wife's political aspirations, maybe that's why WWE's tax history is now such a big campaign issue?
Spc. Shantelle J. Campbell of the U.S. Army via Wikimedia Commons

Yesterday, we reported that after a tax audit by the state of Connecticut several years ago, WWE eventually agreed to pay a $4.4 million settlement, but not before a prolonged disagreement over the tax rate they should pay, based on whether or not they applied for a "broadcaster exemption" in the state's tax code. In the end, they split the difference in a mutually agreeable solution to the problem, as clearly neither side would have wanted an expensive legal battle on their hands. But the conspicuous timing of this news means that Vince McMahon has today woken up to a nightmarish situation. After ploughing close to $80 million of his own fortune into his wife Linda's two U.S. Senate campaigns (over $27 million in this election cycle so far), her hopes of victory could be dashed at the last hurdle by being branded as a tax dodger during her time as WWE CEO.

Those fears were not unfounded, as Linda's opponent Chris Murphy immediately latched on to the allegations and published an attack on his website about how WWE "cheated Connecticut taxpayers" while "taking $22 million in tax credits from [the] state". Inevitably, Murphy's campaign spokesman, Eli Zupnick, used the opportunity to paint Linda once again as a selfish business owner who exploited her local citizens by illegally withholding state taxes:

"This is just the latest example highlighting Republican wrestling CEO Linda McMahon's pattern of cheating the system to benefit herself and billionaires like her. Linda McMahon tried to cheat Connecticut taxpayers, and she didn't pay the bill until she was caught. She tried to cheat schools, hospitals, workers, and middle class families across the state who always pay their fair share. And now she wants to go to the Senate to continue putting herself first and letting millionaires and billionaires just like her game the system while middle class families foot the bill."

More importantly, over the past few hours the story has blown up in the Connecticut media too, with several news sites already writing posts on the matter. Most of these articles, including one by Ken Dixon of the Connecticut Post, quoted Shirpal Shah, a spokesman for the Washington-based Democratic Senatorial Campaign Committee, going for the jugular, because this has become a key battleground state due to Murphy's unpopularity with the electorate:

"These documents paint a disturbing picture of a greedy CEO who cheated the state of Connecticut out of more than $4 million and didn't own up to her company's financial responsibilities until caught."

Perhaps the only silver lining for the McMahon family today is that these latest tax charges came up too late for them to be used against Linda in her fourth and final debate with Chris Murphy earlier this afternoon, which focused largely on the economy, abortion and their negative campaigning once again. However, that didn't stop Linda criticising the local media for "demagoguery" after it was over to explain why she has repeatedly refused to give any specifics on whatever plans she's in favour of for overhauling Medicare and Social Security:

"Thanks to all you all folks in the media, you're the ones who primarily do it and bash any suggestions that might be made to improve either Social Security, Medicare."

Given the latest avalanche of bad publicity, I think she will have become even more cross with the journalists covering her campaign before tonight is over. Vince is surely blowing another gasket too.

That explains why WWE just a few hours ago published a press release entitled "WWE Pays Its Taxes" robustly defending themselves from the recent accusations that they've acted improperly and have illegally failed to pay taxes:

"The recent accusations and subsequent reports by Connecticut-based media that WWE (NYSE:WWE) was "caught" not paying taxes is blatantly false. Publicly traded companies often review taxes with regulatory authorities.

With regard to this recent and specific tax inquiry, WWE believed it should be classified under the single-factor approach to calculating its taxes based on the language of a statute that specifies the approach for businesses whose primary function is broadcasting activity.

WWE and the state agreed that the correct application of the statute to WWE was a bifurcated method with both approaches applying to different parts of its business.

As a result of the agreement, WWE paid the state approximately $500,000 annually over and above what WWE already had paid for the years 2005 through 2010, plus interest, and both WWE and the state have agreed to the bifurcated methodology moving forward.

Since 1982, WWE has grown from 12 employees to more than 700. WWE has paid $600 million dollars in wages to employees in Connecticut and $55 million in payroll and other taxes over the past ten years.

By any set of standards, WWE is an exemplary, CT-based, publicly traded corporation.

On the issue of tax credits, WWE has a responsibility to its shareholders to apply for tax credits when possible. When WWE launches its network (estimated to employ an additional 200 people), we hope to be considered for Governor Malloy's Next Five Program, which provides additional economic assistance to companies like WWE."

This account largely matches the one Irv Muchnick gave yesterday after having a conference call with WWE CFO George Barrios and their spokesman Brian Flinn. Today, Barrios was quoted as saying, to the Connecticut media that was a day late to the story, that:

"I'd define the release that was put out as slanderous, absolutely untrue. The state certainly doesn't feel we were cheating on our taxes. We know we weren't. We take that kind of besmirching of the corporate reputation very, very seriously."

If you're wondering where all the millions of dollars of tax credits come into this complicated corporate financial soup, Don Michak of the Journal Inquirer reported on Tuesday that WWE collected $12.3 million in tax credits in 2009 alone, on top of the previously reported $10.4 million in film tax credits in 2007 and 2008, and had applied for even more. Michak noted that obtaining unnecessary tax credits and selling them on to other companies that can use them, bagging a profit in the process, has become big business, though there is no conclusive evidence just yet that WWE has been involved in such an ethically dubious cash grab at the expense of local taxpayers. However, Irv Muchnick argues that with WWE having about a hundred television tapings a year across the country, they are perfectly suited to capitalise on this corporate con:

Like other producers', WWE's credit-mongering is national in scope. As a minor film producer, its movie division negotiates sweetheart arrangements in locales such as Louisiana, in addition to Connecticut. But the pièce de résistance of this technique is the touring one-night stands of weekly television shoots of Raw (live on Monday nights) and SmackDown (generally taped on Tuesday nights for airing on Fridays). For these drive-by infomercials for future WWE house shows and monthly pay-per-views, states hand out credits, usually based on wildly inflated models of the concomitant stimulus to the local economies.

If true, on the one hand, you must raise a glass to Vince McMahon for having the chutzpah to milk the ridiculous American tax credit system for every last dime, while on the other hand, you have to shake your head at having the gall to continue doing this while his wife was running for office. Poor Vince, he may not be needing that bottle of champagne after all, in less than three weeks time.

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