Tax Reform Friday: Analyzing Amazon’s Tax Breaks

CrystalCityNov. 13, 2018’s announcement that Inc. will be splitting its new East Coast headquarters, commonly referred to as HQ2, between Arlington, Va. and the New York City borough of Queens, means that Amazon and the cities involved have made public the many tax breaks offered to the company.

Cities’ offers to Amazon involved a mix of tax breaks, incentives, and pledges to improve local infrastructure. Arlington was able to offer Amazon a portion of local transient occupancy taxes, as well as dedicating tax revenue from a Tax Increment Financing district for infrastructure at Amazon’s future site. This is in addition to grants based on new job creation, estimated to be $22,000 per new job.

New York’s offer was structured slightly differently: refundable tax credits for new jobs instead of grants ($48,000 per new job) and a cash grant based on the square footage of buildings occupied. In addition, Amazon will participate in a payment in lieu of tax (PILOT) program to generate property tax revenue for community improvements. The New York site could also be eligible for new federal tax breaks meant to incentivize investing in distressed zones.

According to an April 2, 2018, Bloomberg Tax Special Report, evaluating finalist cities’ taxes, Arlington ranked 11th out of 20 for commercial property taxes and New York City ranked last. It’s likely that this was a motivation for Amazon to find tax increment financing districts and PILOT programs in the areas chosen. Overall, Bloomberg Tax considered Arlington and New York to be ranked 12th and last, respectively, based on all applicable state and local taxes.

With the selection, multiple other cities have released their losing offers to Amazon. According to the Atlanta Journal Constitution, Georgia was willing to offer up to $1.3 billion as “mega project tax credits,” an exemption from sales tax on construction materials, and an additional $87 million in local tax credits for a future Amazon site in Atlanta. For a site in Philadelphia, Philadelphia Magazine reports that Pennsylvania would have offered a new tax incentive based on personal income tax collected from Amazon employees (up to $4.5 billion), and a 20-year tax increment financing district worth an estimated $1.1 billion.

With the selection process over, Crystal City welcomes Amazon to its neighborhood, even if they’ve changed its name.

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: How do you think each city’s tax breaks influenced Amazon’s decision?

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