Amazon Headquarters Bids Get Tweaks Thanks to Federal Tax Act

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By Che Odom

Cities hoping to land Amazon’s second headquarters may need to redraft tax incentives they’ve offered because of recent changes in federal tax law.

Incentives such as cash grants, public infrastructure, credits, refunds and reimbursements, and no-cost land offered to Inc. by various states and cities were excluded from federal taxable income when they were pitched to the Seattle-based company. That changed Jan. 1, and some communities may be tweaking their bids as a result.

The 2017 federal tax act ( Pub. L. No. 115-97) makes many incentives taxable.

Not only that, but states that conform to Internal Revenue Code Section 118 may find incentives they offered Amazon are subject to their own taxes.

“Business taxpayers should demand that incentive packages be restructured in light of tax reform to ensure that they realize the full power of these incentives,” Joshua E. Gewolb, partner and tax attorney at Rochester, N.Y.-based Harter Secrest & Emery LLP, told Bloomberg Tax. “Form now matters.”

More than 200 cities submitted bids to become Amazon’s second headquarters, which the company said will be the site of 50,000 high-paying jobs and an investment of $5 billion in the local community. The retail giant narrowed the list to 19 U.S. cities and Toronto, Canada. Most of the communities aren’t releasing proposal details, particularly those concerning incentives.

Attempts to reach Amazon for comment weren’t successful.

What’s in an Offer?

Some details of the bids, as well as existing tax breaks, are known for some of the finalist communities.

Boston, which made its initial pitch public in October 2017, provides improvements to public transportation, roads, and other infrastructure to service the headquarters. Such improvements could create a tax liability for Amazon depending on how they are tied to the project.

Boston and Washington, D.C., which released a heavily redacted version of its bid, offered various credits, exemptions, abatements, and rate reductions, some of which could be subject to tax.

Incentives such as nonrefundable tax credits, deductions, abatements, and exemptions probably aren’t taxable under the new federal provision, while refundable credits; grants of cash, land, or equipment; cash reimbursement; and certain land or infrastructure improvement could be, according to an Ohio tax official who wouldn’t allow his name to be published because he isn’t authorized to discuss Amazon.

“I’m certain some bids are evolving,” he said, adding that many states aren’t clear on what the amendments to Section 118 mean because the Internal Revenue Service hasn’t yet released guidance on it.

An already appealing bid by Montgomery County, Md., just got better for Amazon. The Maryland Legislature voted earlier this month to approve an incentive package tailor-made for the company worth billions of dollars. This package, developed well after the federal tax law was enacted, doesn’t appear to contain incentives that would be subject to taxation.

Not a Bad Idea

Incentives should be taxed inasmuch as they affect a business’s net profits, Timothy Bartik, senior economist with the W.E. Upjohn Institute for Employment Research, told Bloomberg Tax.

“For example, consider cash grants,” said Bartik, whose research includes studies of how taxes and public services affect local and national economies. “That should be taxed because it directly adds to the firm’s cash flow. It should be taxed at the time it is received.”

Property abatements also should be given a close look, Bartik said. Abatements can affect the firm’s net taxes after state and local taxes, and should be taxed at the federal level, or “rather, it should reduce the deduction the firm gets for local property taxes paid,” he said.

Impact of Federal Tax Act

Going forward, states and local governments will need to figure out what constitutes a contribution to capital of a business. Many states have yet to address this and other business-income aspects of the new federal law, and they probably won’t until 2019, according to many tax practitioners interviewed by Bloomberg Tax.

Georgia is an exception. Gov. Nathan Deal signed H.B. 918 March 2, decoupling the state tax code from Section 118, so at least incentives offered by Atlanta—another finalist in Amazon’s headquarters search—and other jurisdictions in Georgia won’t be taxable under state law.

However, the prospect of increased federal income taxes may prevent corporations from accepting incentive offers in exchange for relocating or expanding, or may cause corporations to seek greater offers to offset the additional tax cost, Tim Gustafson, tax attorney and counsel at Eversheds Sutherland LLP, told Bloomberg Tax.

“We expect to see both corporations and state and local governments respond to the amendment by offering new credits, exemptions and other incentives that will not be excluded from the federal definition of contribution to capital,” Gustafson said.

“We may also see restructuring of existing incentives to minimize the risk that the incentives are now taxable,” he said.

For example, instead of contributing land at no cost, a locality may lease the land at fair market value coupled with an abatement of property tax on the leasehold interest, he said.

To contact the reporter on this story: Che Odom in Washington at

To contact the editor responsible for this story: Ryan C. Tuck at

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