Incentives Watch: A Constitutional Cloud Lingers Over States’ Amazon Deals

Rather than continue to resist collecting sales tax in some jurisdictions, Amazon has brokered deals in some states in which the state agrees to defer imposing tax in exchange for the internet behemoth’s promise to locate distribution facilities within the jurisdiction’s borders. Indiana, Nevada, and Texas are among the states that have struck these types of agreements with Amazon, according to a Bloomberg BNA Weekly State Tax Reportarticle.

In May, the New Jersey Division of Taxation and Amazon reached an agreement regarding the collection of sales tax. Amazon agreed to begin collecting sales tax on purchases by New Jersey residents by July 1, 2013. In exchange, New Jersey will help Amazon build two distribution facilities in the state that are expected to create at least 1,500 full-time jobs, a Bloomberg BNA Weekly State Tax Reportarticle noted.

With Amazon set to build two new distribution facilities in New Jersey and collect sales tax from in-state residents, some are wondering whether the state will offer the same deal to other companies.

For some states, it’s not clear whether Amazon’s deal represents a tax incentive or a tax settlement.

The distinction is important because the question over the constitutionality of state tax incentive deals has never been finally resolved. By definition, most state tax incentives treat in-state taxpayers better than out-of-state taxpayers.

The issue came up before the U.S. Supreme Court in DaimlerChrysler Corp. v. Cuno, but the high court never addressed the case on the merits. Instead, the U.S. Supreme Court reversed the U.S. Sixth Circuit Court of Appeal’s ruling after concluding that the group of taxpayers who filed the lawsuit lacked standing to challenge the tax incentive. The Sixth Circuit had ruled that Ohio's investment tax credit violated the U.S. Commerce Clause.

As Donald Griswold, a partner in the Washington D.C. office of Crowell & Moring, put it at the Bloomberg BNA State Tax Advisory Board Roundtable at the Georgetown Law Center, “when ‘son of Cuno’ comes up and the merits of the issue in Cuno v. Daimler Chryslerfinally gets presented in the U.S. Supreme Court, then we may actually get our answer on constitutionality only if it's actually an incentive. If it's a settlement agreement instead, perhaps we still won't get our answer.”

For more information about this topic and other online taxation issues, check out the next Bloomberg BNA Special Report, which will be out on Sept. 28.

In other developments . . .

The Connecticut Department of Economic and Community Development issued amended regulations moving administration of the historic structures rehabilitation tax credit to the department and removing the provision limiting owners to applying for a credit reservation for one historic structure during a state fiscal year, according to an article in the Bloomberg BNA Weekly State Tax Report.


By:  Kathleen Caggiano
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