Amazon HQ2 Would Go to D.C. If Use Taxes Only Concern

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By Che Odom

Washington, D.C., would be Inc.'s pick for a second headquarters if the company based its decision on the taxes it must pay on equipment and construction costs.

A sizable portion of the e-retailer’s capital costs in setting up HQ2 would be subject to use taxes that range from 5.75 percent in the nation’s capital to 9.5 percent in Los Angeles among the 19 U.S. cities still in the running to house Amazon’s new corporate digs. Toronto, Canada, is also being considered for the project.

Though a significant cost, use taxes may not be enough to sway the company’s decision about where to locate its second headquarters. Amazon is still looking for breaks from states and local governments, tax attorney Jennifer Weidler Karpchuk, senior counsel with Chamberlain Hrdlicka in Philadelphia, told Bloomberg Tax.

“Competition is taking the form of rival tax breaks and incentives, in return for the sought-after capital investments and jobs,” she said.

All of the communities still under consideration by Amazon impose use tax on construction materials and capital equipment, such as office furniture and computers. Unlike property tax, use tax is only levied on property once, but typically at higher rates.

Amazon, which has a market capitalization of $770 billion, has said the new headquarters would involve 50,000 high-paying jobs and an investment of $5 billion in the local community.

Fishing for Tax Breaks

Use tax incentives, such as credits, rebates, and refunds, can lower a taxpayer’s burden significantly, so the rate listed in each of the 19 communities doesn’t tell the whole story.

“For a large company that is open to multiple options for its location, it makes sense that it would try to ‘shop around’ for the best tax savings and opportunity and use the potential for new business, jobs, and economic growth as leverage,” said Karpchuk, co-chair of the sales and use tax subcommittee of the American Bar Association’s Section of Taxation’s State and Local Taxes Committee.

“Sales and use tax incentives definitely play into that calculation,” she said. “Some jurisdictions may see efforts to create new exemptions, credits, or abatements for certain industries, while other states already have programs in place to attempt to foster growth.”

Much of what states and cities are offering Amazon isn’t being disclosed to the public, but the bids are likely to become more generous as time goes on and competition becomes more fierce, Steve R. Johnson, a law professor at Florida State University who examines tax policy, told Bloomberg Tax.

“To survive the first rounds of ‘cuts’ (dropping candidate localities from the initial list), localities’ initial offers may be quite good. Then ‘crunch time’ comes,” Johnson told Bloomberg Tax in an email. “It’s down to us versus Podunk, and the company decides and announces tomorrow. ‘We’ve got to win.’”

The remaining candidates have by then invested so much time, energy, and reputation that, in this “must win/last minute/now or never” fever, they’ll throw in extra last-minute tax “goodies” on top of what were generous original offers, Johnson said.


Bloomberg Tax analysts Katie Devinney and Ernst Hunter collected data on use tax rates from all of the jurisdictions still in contention for Amazon’s second headquarters, finding Washington, D.C., had the lowest base rate.

Considering the ultimate size and number of workers Amazon intends to have at its second corporate center, it is likely that the portion subject to use tax will be measured in the billions, according to Devinney and Hunter. With use tax rates between 5.75 percent ($57.5 million per billion) and 9.5 percent ($95 million per billion), it is at least worth negotiating a capital investment credit, even if use tax won’t sway the final decision of where to locate, they 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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