In the national competition for Amazon.com’s vaunted “HQ2,” cities are finally putting their money where their mouth is. With $5 billion and “50,000 high-paying jobs” on the line, state and local officials are throwing money in Amazon’s direction in order to secure what some have called a “once-in-a-generation opportunity.” New Jersey has already passed the Transformative Headquarters Economic Assistance Program, estimated to be worth $5 billion in tax credits and exemptions. Maryland has also thrown its hat in the ring, passing the Promoting ext-Raordinary Innovation in Maryland’s Economy (PRIME) Act. The legislation comes after Montgomery County, the county bordering the District of Columbia to the north, was named as one of 20 “finalists.” Maryland is offering a mix of withholding credits, payroll credits, and property tax exemptions worth an estimated $3 billion, the most offered in Maryland’s history.
The legislation includes credits for income, property, and sales and use taxes, as follows:
●The state income tax credit is worth 5.75 percent of payroll for each new qualifying job;
●A 50 percent state property tax exemption; and
●A full exemption of all sales and use taxes on construction and warehouse equipment used on the project.
Maryland also plans to enact separate legislation to commit $10 million per year in infrastructure and transportation improvements over ten years. In all, Maryland promises $5 billion in credits, incentives, and other spending to persuade Amazon to invest in the state. Estimates of the project’s economic impact predict 100,000 new jobs and an additional $17 billion in economic activity per year, according to Leslie Pappas in Bloomberg Tax’s Daily Tax report: State.
Devil in the Details
Amazon will be under close scrutiny, as the package contains several clawback provisions tied to employment and investment requirements. For a new job to meet the definition of a “new qualifying job,” the position must pay between $60,000 and $500,000, with an average among all new qualifying jobs of $100,000. Amazon must fill 40,000 new qualifying jobs within 17 years from enrollment in the program. It must also expend $500 million building the HQ2 and spend at least $4.5 billion on wages over the 10-year period during which the credits will be claimed. Should Amazon not fulfil any of these requirements, or if employment declines in a single year, the program will terminate and Maryland will no longer authorize any tax credits or exemptions offered through the program. Should this occur, one can only imagine the litigation that will ensue.
We will have to wait until later in the year to know Amazon’s final decision. In the meantime, state and local officials will continue to debate and pass legislation preparing the red carpet for what could be a transformative investment in their economy. The competition for HQ2 has reached a fever pitch, and you can expect more legislation from each area of Amazon’s 20 finalists (including, reluctantly, Pennsylvania) in the coming months.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Is this the best way for states to spend taxpayer money?
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