Amazon’s HQ2 Finalists Bait With Tax Breaks

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By Alex Ebert

Twenty cities across the U.S. and Canada remain contenders in the largest corporate jobs contest in modern times after an Amazon announcement cleared more than 200 cities from the list of potential sites for its second headquarters.

Of those making the Jan. 18 cut, some finalists made enormous promises of tax incentives to lure the 50,000-job project, while others predicted to be a shoe-in for the final list didn’t make the cut despite large incentive packages. However, most tax incentive proposals among the finalists remain shrouded in secrecy.

Finalists include expected landing spots such as New York City and Newark, New Jersey, where then-governor Chris Christie (R) recently signed a bill ( P.L.2017, c.282) providing up to $7 billion in tax credits. Shunned are Detroit and Windsor, Canada, which promised in their joint bid to let Amazon.com, Inc. keep new income tax revenue generated by their Detroit employees for 10 years and half of those taxes for the decade thereafter, according to local news reports that received copies of the confidential bid.

Amazon estimates it will invest $5 billion into multiple buildings to create its second headquarters, where it projects workers will make an average of $100,000. This project set off a firestorm of bids and media attention, and experts have called it the largest deal linked to a corporate headquarters in U.S. history.

State politicians in New Jersey pointed to the announcement as an indication that incentives were a large factor.

“I don’t think it’s a coincidence that Newark made it into the list of finalists for HQ2 just days after our pro-economic growth legislation was enacted,” New Jersey Sen. Sam Thompson (R) said in a Jan. 18 statement, referring to the state’s new tax incentives signed with Amazon in mind. “We’re very excited to see Newark named a finalist, but we’re not surprised.”

In a statement thanking the cities, regions and states that submitted 238 proposals, Holly Sullivan, with Amazon’s Public Policy division, said the losing cities would still be considered “for future infrastructure investment and job creation.”

Little Known About Incentives

With some exceptions, the details from most proposals remain a secret. Some states, such as Colorado, have described their pitch as “frugal but responsible,” while others have remained mum on any details.

Other finalists were more nuanced. Austin Mayor Steve Adler (D) spoke briefly in response to the Amazon announcement, stressing that contemplation of economic issues required an inventory of urban impact in addition to public input.

“The city council has taken action to focus all of our economic development conversation around the city’s greatest challenges and needs, and, for us, that’s mobility and affordability—that’s the lens we’re going to use,” Adler said at a morning news conference.

“I would also say—because I’ve been asked the question—I still not have heard any conversations about offering incentives,” he said in a video posted to Facebook.

“Ultimately, there needs to be a very open and transparent community conversation about Amazon and all of these related issues,” Adler said.

But silence doesn’t mean incentives were left out of proposals, Paul Rafelson, a Pace University law professor told Bloomberg Tax Jan. 18.

“I’m sure Massachusetts is going to make a sweet deal,” he said. “Massachusetts is obviously very generous. Look at GE. And it will probably be a lot more generous with respect to Amazon.”

The state, along with Boston, coaxed General Electric to move its headquarters to Beantown with roughly $276 million in economic and infrastructure incentives, according to an analysis by the liberal Tax Policy Center.

Another finalist, Columbus, Ohio, wouldn’t divulge specifics of its proposal. But Ohio has provided more than $123 million in previous incentives to develop fulfillment and data centers in the Buckeye State.

Development Dollars, Big Airports

Analysts have predicted that several aspects of Amazon’s bid could steer them toward certain cities that check all the boxes in the retail giant’s request for proposals. Anderson Economic Group’s initial projections based on business services, cost of doing business, and ease of transportation were correct on eight of its top 10 picks. The list predicted 16 of the 20 sites.

“As much as they could have been swayed by fancy sales pitches, they appear to have picked based on the numbers,” Jason Horwitz, senior consultant at Anderson Economic Group, told Bloomberg Tax in a Jan. 18 email. “Incentives may matter in the future, but it’s not clear whether they mattered at this stage. Indeed, we know that several of the cities selected state publicly that they did not go into details on incentives in their proposal, implying they will enter into negotiations on that later.”

Some other factors, such as cost of land and price for labor, could also drive the decision.

Amazon anticipates it will need up to 6 million square feet of office space and plans to invest about $5 billion for its second campus. Rafelson, a tax attorney who represents a group of Amazon sellers, said this could steer the company away from high-price areas such as New York City and toward more development-friendly and cheaper labor cities such as Newark or Atlanta.

“I’m skeptical about New York because I just don’t know how much more they could possibly build. What will $5 billion get you in New York, probably not much?” he said. “You can find people who can do the retail roles cheaper than in New York, and I wouldn’t be surprised if you see a slow defect out of Washington into Denver or wherever they go.”

Rafelson isn’t alone. Overseas betting markets are predicting Boston, Austin, and Atlanta have the best chances of winning the bid.

Cheers and Jeers

Reactions were mixed, as some states boasted while others kept calm and carried on.

“Massachusetts put forth a comprehensive proposal that showcased the Commonwealth’s global innovation economy, world-class workforce and leading higher educational institutions across the state,” Lizzy Guyton, spokesperson for Massachusetts Gov. Charlie Baker (R), said in a Jan. 18 statement. Amazon’s selection bid for Massachusetts includes the cities of Somerville and Cambridge as well as Boston.

Chicago Mayor Rahm Emanuel (D) issued a Jan. 18 statement praising the Second City as a finalist, saying inclusion in the list “makes clear that Amazon recognizes Chicago’s great strengths,” which he said included access to talent and transportation.

The losers tended to issue statements of solidarity. Dan Gilbert, the founder of Quicken Loans Inc. and leader of Detroit/Windsor’s more than 100-person pitch team, said he was “disappointed” but “not deterred.”

“All you have to do is spend an hour walking around town and you will have a very clear and deep understanding of the opportunities, optimism, and future of the motor city,” he said in a Jan. 18 statement.

With assistance from Tripp Baltz in Denver, Michael J. Bologna in Chicago, Stephen Joyce in Chicago, Aaron Nicodemus in Boston, Leslie A. Pappas in Philadelphia, and Paul Stinson in Austin, Texas

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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