Tax Breaks Plentiful for Second Amazon HQ Even Without Bids (1)

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By Che Odom

Many of the tight-lipped cities vying to become Amazon’s second home already offer incentives for economic development that would provide the online retailer with millions of dollars in tax breaks.

Their tax packages to lure Amazon.com Inc. are likely even more generous, though the company already has a good idea of where it will establish its second headquarters and will look to factors beyond taxes, according to policy experts.

“Amazon knows that it can drive down its taxes by pretending that it is really guided by these tax incentives,” Yeshiva University law professor Edward A. Zelinsky told Bloomberg Tax. “In practice, Amazon knows where it wants to go and wants the illusion of competition to avoid paying taxes.”

Still, 19 cities in the U.S. and one in Canada are in the running to become another headquarters for the Seattle-based company, which Amazon said will be the site of 50,000 high-paying jobs and an investment of $5 billion in the local community.

With few exceptions, the 20 finalist cities aren’t releasing details of their bids, particularly when it comes to financial incentives, though advocates from New York to Miami have demanded the information be made public. Nonprofit organizations and newspapers around the country have sued in attempts to pry details from local governments.

“Taxpayers deserve to know how their money is spent,” Anna Beavon Gravely, deputy state director of the conservative political advocacy group Americans for Prosperity–North Carolina, told Bloomberg Tax.

Remaining Mum

Raleigh, N.C., is an example of a city not releasing details of its proposal. The state, which helped put together the package, also is staying quiet.

However, last year, the state General Assembly enacted enhanced incentives for companies that invest at least $4 billion and create at least 5,000 jobs. In addition, the state could help financial development of the headquarters and provide tax refunds.

“Since taking office just last year, Gov. Roy Cooper has committed more than $173 million in corporate welfare spending via subsidies, bailouts and special tax loopholes,” Beavon Gravely said. “But corporate welfare programs often produce a poor return on investment.”

Nearby Virginia also is keeping its proposal secret. However, Virginia offers financial assistance, grants, credits, and exemptions, as well as fee and permit waivers, to qualifying businesses. The state also has a flat 6 percent corporate rate, and the sales factor in its income tax apportionment formula is double-weighted, benefiting companies with high payrolls and property in Virginia.

Miami, which also is keeping its pitch private, can offer millions of dollars worth of incentives from funds designed to encourage development in certain parts of Miami-Dade County.

Indiana, home to finalist city Indianapolis, can direct up to 100 percent of expected income taxes generated by Amazon employees back to the company for up to 10 years.

No Predictor

In general, existing incentives available to all qualifying businesses, independent of specific bids, could earn Amazon millions of dollars.

But an analysis of subsidies of these kinds can’t predict where Amazon will land, James Edward Maule, a Villanova University law professor and expert in taxation, told Bloomberg Tax in an email.

“First, how do we judge the relative ability of a community to compete using tax incentives? Is it a comparison of the lost tax revenue with the economic benefits generated by the business(es) that enter the community?” he said.

Tax incentives don’t make sound policy for states and local governments, according to Beavon Gravely. They crowd out funding for core services such as infrastructure or public safety and can lead to higher taxes, she said.

“Tax incentives and other forms of corporate welfare are like a reversal of the classic Robin Hood story,” she said. “Government takes hard-earned money from taxpayers and hands it to well-connected corporations like Amazon.”

Sales Tax Advantage

Amazon also benefits at the state and local level when it comes to sales tax, according to a report released March 26 by the Institute on Taxation and Economic Policy based in Washington, D.C.

In seven states—Alabama, Alaska, Idaho, Iowa, Mississippi, New Mexico, and Pennsylvania—Amazon is either not collecting local taxes or charging a lower tax rate than local retailers.

The reason for this varies across states, including Amazon applying interstate “use taxes,” which in some cases don’t include the local tax rate, the report said. In other cases, state law requires sales tax to be assessed based on the location of the seller rather than the buyer, it said.

The report said that lack of consistent sales tax collection is contributing to an unlevel playing field for local businesses “because millions of shoppers are able to pay less tax if they choose to buy from out-of-state companies over the Internet rather than at local stores.” It recommends that states explore reforms to bring their sales tax policies into the digital age.Only two finalists for the second HQ—Philadelphia and Pittsburgh—can be found in one of these states in which Amazon appears to have a sales tax advantage. So those cities “are already losing out on revenue by giving a free pass to e-retailers based outside of the state, or even just outside these cities’ borders,” Carl Davis, ITEP research director and author of the report, said in a statement.

Incentives by Finalist

Few of the finalist cities in the U.S. have made their Amazon bids public, but Bloomberg Tax looked at general incentives offered by the jurisdictions, as well as press reports, to come up with the following breakdown of the tax breaks that may be offered.

  • Atlanta. More than $1 billion in infrastructure improvements and tax incentives are available here, which could include Georgia’s Job Tax Credit that provides businesses a tax credit of $750 to $4,000 per job per year for five years.
  • Austin, Texas. No details have been released, but the Texas Tribune reports the state could offer a grant from the $230 million Enterprise Fund. In addition, Texas has no income tax, and it allows cities to offer millions of dollars in financial incentives. Also, school districts can forgive a large portion of property taxes.
  • Boston. The city’s pitch involves up to roughly $15 million in cash, plus government support and potential retail space. The city would set up an Amazon Task Force to coordinate workforce development, building permits, and community relations. The company also could receive $4 million over 20 years in loans and real property tax relief, as well as $13.1 million over 10 years to train technical talent.
  • Chicago. The city will offer about $2 billion in incentives, half coming from income tax revenue diverted back to the company.
  • Columbus, Ohio. The city’s bid includes a refund for 35 percent of payroll taxes up to $400 million over 16 years, another 25 percent of payroll taxes diverted to a transportation fund, and 100 percent property tax abatement.
  • Denver. The bid, much of it redacted when released to the public, reportedly offers incentives of more than $100 million. It includes a jobs credit that provides a state income tax credit equal to 50 percent of FICA paid by the company on net job growth, and the company could receive job-training grants up to $1,200 per employee, among other incentives.
  • Dallas. The package also hasn’t been released to the public. As with Austin, the company could receive a grant from the state’s $230 million Enterprise Fund. Again, Texas doesn’t tax income, and it allows cities to offer million of dollars in financial incentives. Schools districts also can forgive property taxes.
  • Indianapolis. Details haven’t been released publicly, but the bid may involve Economic Development for a Growing Economy (EDGE) tax credits that enable the state to direct up to 100 percent of expected income taxes generated by Amazon employees back to the company for up to 10 years.
  • Miami. The city remains mum on specifics, but more than $1 million in financing could be eligible if headquarters were built in Miami’s Overtown district, where other business incentives are offered through the city and state. Millions could be provided through Miami-Dade County if the project is built in one of five specific areas within it. Also, Florida doesn’t have an income tax.
  • Los Angeles. While the mayor said the city is offering no tax incentives, the state is. Gov. Jerry Brown (D) said the state can offer hundreds of millions of dollars in incentives—including up to $200 million over five years under the California Competes Tax Credit, up to $100 million over 10 years in employment-training funds, local property tax abatement for up to 15 years, and other incentives.
  • Montgomery County, Md. The governor proposed $3 billion in tax breaks and grants and about $2 billion in transportation upgrades. The Senate voted to approve, and the measure is working its way through the House. State officials say the bid is worth $5.6 billion.
  • Nashville, Tenn. The details aren’t public, but the state offers businesses a $5,000 per job tax credit, as well as a credit of 1 percent-10 percent for the purchase, third-party installation, and repair of qualified industrial machinery. Tennessee doesn’t have an income tax or payroll tax.
  • Newark, N.J. The proposal calls for $7 billion in potential tax incentives—including $1 billion in savings on a waived city wage tax, $1 billion property tax abatements, and $5 billion from the state.
  • New York City. Mayor Bill de Blasio (D) said the city is offering nothing in addition to the state’s proposal, which hasn’t been disclosed. The state and city offer Enterprise Zone, energy and environmental, job creation, investment, and other tax credits.
  • Northern Virginia. This bid isn’t public, but Virginia offers a flat 6 percent corporate rate, and the sales factor in the state’s income-apportionment formula is double-weighted, benefiting companies with high payrolls and property in Virginia. The state also offers financial assistance, grants, credits, and exemptions, as well as fee and permit waivers to qualifying businesses.
  • Philadelphia. The state could offer more than $1 billion in incentives. City Councilman David Oh introduced a bill in October 2017 that would offer a city tax exemption of up to $2 billion to new mega-businesses. The details of the bid, however, haven’t been made public.
  • Pittsburgh. A state court ruled that the city could keep its bid private. However, like Philadelphia, the city may rely on more than $1 billion in incentives offered by the state.
  • Raleigh (Research Triangle), N.C. This bid also is being kept under wraps. The state budget provides enhanced incentives for companies that invest at least $4 billion and create at least 5,000 jobs. Also, Amazon could be eligible for up to 100 percent reimbursement of employee income taxes and up to $50 million for project infrastructure.
  • Washington, D.C. The city’s pitch includes redacted portions that presumably address tax breaks. Relocation reimbursements of up to $5,000 for each employee relocating to Washington and wage reimbursements of up to $10,000 for each new hire may be offered. The city also promises a zero percent corporate tax rate for five years and a reduction in the corporate tax rate to 6 percent from 9 percent “for the life of the company,” in addition to property and sales tax exemptions.

To contact the reporter on this story: Che Odom in Washington at codom@bloombergtax.com

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

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