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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.
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.
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.”
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.
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.
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