Special Report: Scoring the Amazon HQ2 Finalists on Taxes

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By Katie Devinney and Ernst Hunter

Katie Devinney and Ernst Hunter are State Tax Law Editors at Bloomberg Tax

From all outward indications, Amazon.com Inc. is in the midst of a rigorous evaluation of the 20 finalist locations for its second headquarters, HQ2. Among the selection criteria that the company has published are a “stable and business-friendly… tax structure”. Here we examine the four major tax types imposed by the 19 U.S. jurisdictions still in the running for HQ2: namely, property tax, use tax, individual income tax, and corporate income tax. (Due to the complexity of comparing U.S. and Canadian taxes side-by-side, particularly corporate income taxes, Toronto is omitted from this analysis.)

Based on the information we have about Amazon and its proposed headquarters, we score how business-friendly each of these locations would be, with a maximum possible score of 100. Each tax type is allotted 25 points on our scale. Amazon is also seeking incentives from the finalists, including tax credits. Bloomberg Tax addressed possible credits and other incentives in a previous article.

Amazon HQ2
Property Tax

Amazon anticipates an eventual capital investment of $5 billion or more in HQ2. To evaluate the potential property tax bill on such an investment, we rate the 19 U.S. finalists based on the top effective rate of property tax applied to commercial real property within the jurisdiction. The nominal rate comprises in most locales the rates imposed by several overlapping taxing authorities. For instance, in Atlanta, property taxes are imposed by overlapping city, school, and county taxing authorities. The effective rate is obtained by applying the nominal rate to the percentage of appraised or market value subject to tax. In most jurisdictions this is 100 percent, but in some it is less. For instance, in Nashville, the property tax rate is applied to 40 percent of the value of commercial real property. Multiplying this by the top nominal rate of 3.155 percent yields a top effective rate of 1.26 percent.

While we selected the highest rate applicable in each locale being considered by Amazon, a lower rate may apply to certain sites under consideration. It is also worth noting that we do not take into account differing valuation methods that the jurisdictions may apply and how that could affect ultimate liability. Since the bulk of Amazon’s capital investment is likely to be characterized as commercial real property in all of the jurisdictions being considered, we also do not consider the tax applied to other property types.

Below are the scores for each jurisdiction. A score of 1 was assigned to the jurisdiction with the highest effective rate, New York City, a score of 25 to the lowest, Indianapolis, with scores between 1 and 25 assigned proportionately to the remaining jurisdictions.

With property taxes being levied annually, it is easy to see what a significant cost this could represent for HQ2. Assuming a taxable value of $5 billion of commercial real property, based on current rates, HQ2 could have an annual property tax bill ranging from a high of $375 million in New York City to a low of $25.5 million in Indianapolis.

Use Tax

In the absence of credits and incentives, a significant portion of Amazon’s capital investment in HQ2 will be subject to use tax in any of the 19 U.S. jurisdictions under consideration. All of these jurisdictions 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. Below are the top use tax rates and scores for each U.S. jurisdiction under consideration.

We currently do not have enough information to know what portion of the HQ2 capital investment will go to land and nontaxable services as opposed to taxable construction materials and capital equipment. Considering the ultimate size and number of workers Amazon intends to have at HQ2, it is likely that the portion subject to use tax will be measured in the billions. 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 will not sway the final decision of where to locate.

Individual Income Tax

With an anticipated 50,000 new full-time employees at HQ2 in the next 10 to 15 years and average compensation exceeding $100,000, you can bet that the finalists’ individual income tax rates are on Amazon’s radar. Four of the jurisdictions under consideration do not impose an individual income tax at all. Of those that do, in Raleigh, Philadelphia, Pittsburgh, Indianapolis, Denver, and Illinois, the tax is imposed at a flat rate, regardless of income amount. In the remaining jurisdictions, a progressive rate structure applies. In certain jurisdictions, such as Pittsburgh, Philadelphia, and Montgomery County, a higher rate applies to resident employees than to nonresidents. Where this is the case, we based the jurisdiction’s score on the highest rate applicable to resident employees. Newark and Pittsburgh both levy payroll taxes on gross payroll, which are imposed on the employer. Since these are imposed on substantially the same base as the individual income tax, we added the rates at which these are imposed to the top individual income tax rate. Unemployment insurance, workers’ compensation, and other taxes with low wage base caps or not levied as a percentage of income or payroll are not included. Below are our scores for the 19 finalists based on the top combined state and local individual income tax rates imposed within their jurisdictions.

These numbers should not be viewed as a precise indicator of how favorable or not a jurisdiction’s individual income tax is. Jurisdictions diverge on how to determine the amount of income subject to tax. Moreover, many of the rates listed above reflect a top marginal rate, which may be considerably higher than the rate applied to the average HQ2 employee. For instance, in Los Angeles, an employee with taxable income of $100,000 would have an effective state income tax rate just shy of 6.7 percent. For highly paid executives, the effective tax rate would approach the top marginal rate of 12.3 percent.

Corporate Income Tax

From a corporation’s perspective, locating its headquarters in a particular jurisdiction ideally should not increase its corporate income tax liability. We rated the 19 U.S. jurisdictions being considered by Amazon based on their corporate income tax structure, assigning 10 points to the tax rate and 15 to the apportionment formula.


For rates we selected the top corporate income tax rate. Columbus received the highest score using this method. It should be noted that this was not exactly based on an apples-to-apples comparison. Ohio’s commercial activities tax (CAT) is imposed on gross receipts sourced to the state which will yield a higher base than the net income on which corporate income tax is imposed. Texas’ margin tax is also imposed on a different base than corporate income taxes. While the “taxable margin” on which this is imposed is calculated similarly to net income, the value of a side-by-side rate comparison will vary depending on a taxpayer’s particular facts. Moreover, even in those states that impose a normal corporate income tax, if the state apportions income based on a single sales factor, a high tax rate might not negatively impact the decision of whether to locate in the state. In this case, the increase in property and payroll located in the state does not increase the amount of business income apportioned to the state. Based on these considerations, we assigned a lower weight to these rates than the rates of the three other taxes evaluated.


Locating headquarters in a jurisdiction whose apportionment formula includes property and payroll increases the amount of income subject to corporate income tax in the state and the likelihood of double taxation. For this reason, all else being equal, single-sales-factor states are preferable locations for headquarters. We assigned apportionment scores of 15 to the single-sales-factor jurisdictions and 0 to the jurisdictions applying three-factor apportionment with double-weighted sales. Because Tennessee’s apportionment factor is based 60 percent on sales, compared to 50 percent for three-factor-double-weighted states and 100 percent for single-sales-factor states, we assigned three points to Nashville’s apportionment score.

When looking at the combined scores for rates and apportionment formula, Columbus comes out at the top of the list. As mentioned above, this ranking is somewhat misleading, as there are disadvantages to Ohio’s CAT that are not found in other states’ corporate income taxes. Montgomery County’s relatively high tax rate and three-factor apportionment formula earned it the spot at the bottom of the list.

Final Tally

And the winner is … Austin. Looking at the four major tax types, Austin scores the highest overall, followed closely by Indianapolis and Dallas.

Perhaps Amazon was dropping a hint with its Super Bowl ad after all. In all seriousness, favorable tax treatment is just one of a number of items on Amazon’s wish list. Obviously, if this were the only issue companies consider, Fortune 500s would long ago have fled high-tax states like New York, California, and Massachusetts. New York is home to 54 Fortune 500 companies. California hosts 53. And 30 are headquartered in Massachusetts. Indeed taxes fund, at least in part, many items—among them an educated workforce, mass transit, and airports—that would appear on almost any large company’s wish list. Of course, these benefits provide the most value to companies when they can avoid paying full price. This is where credits and incentives come into play.

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