Amazon
adapts to potential federal internet sale tax legislation
By
Phil Mattera in the Dirt Diggers Digest
When
companies get subsidies from state and local governments, it usually means that
they have to pay less in taxes. Internet retailing behemoth Amazon.com built
its business on making sure it
could avoid collecting sales taxes from many of its customers,
thus allowing it to undercut its brick and mortar rivals.
It
now looks like that indirect subsidy is finally coming to an
end. Congress seems poised to pass legislation that would require all online merchants
with $1 million or more in revenue (Amazon’s annual sales are 60,000 times
larger at $61 billion) to collect state and municipal sales taxes from
customers anywhere in the country. This will be a godsend to struggling
governments that need the revenue to pay for education, healthcare and other
vital services.
To make that service possible, Amazon needs to greatly expand its
network of huge distribution centers from which all those Kindles and toys and
kitchen gadgets can be quickly transported to impatient customers. The company
just reported a
37 percent drop in its first quarter profits that has been attributed in
part to the cost of expanding that distribution network.
Don’t
shed any tears for Amazon. That drop is probably just a blip. The company has
already taken steps to radically reduce the cost of building those new
facilities.
It
has done this by using its sales tax collection practices as leverage in
negotiating with state governments. For several years, the company negotiated
special exemptions from the requirement to collect taxes in those states where
it had a physical presence such as a warehouse. In some states, such as South
Carolina in 2011, it used the promise of job creation linked to new
distribution centers as bait to get the exemptions.
When
necessary, the company also tried to use those promises to evade obligations to
make good on judgments concerning uncollected past taxes. For example, last
year the company reached a deal with
Texas that allowed it to skate on a $269 million assessment for uncollected
taxes. In exchange, the company agreed to invest $200 million on facilities it
would have had to build anyway.
The
company is also shifting its demands to traditional economic development
subsidies such as income tax credits, property tax abatements and cash grants.
For example, the company got a
$7.5 million state grant and a $1 million local abatement for a distribution
center it agreed to build in Delaware, and it agreed to build two such
facilities in New Jersey on the condition
that it receive a subsidy package, the value of which has not
yet been announced
Amazon
has also received a
$2 million tax credit and up to $300,000 in training grants from the Indiana
Economic Development Corporation for a fulfillment center it agreed to build in
Jeffersonville. That agency — whose website lures
companies with the pitch “Looking for a right-to-work state with all the right
resources, business incentives, low corporate tax rates and AAA
credit rating in place to reach your full potential? – is in tune with
Amazon’s sensibilities. For in addition to seeking financial assistance, Amazon
takes advantage of the implicit subsidy created by weak labor laws.
The
fact that its U.S. operations have remained entirely non-union has made it
easier for the company to impose inhuman working conditions in its facilities,
which have been the target of criticism
by groups such as Working Washington. The controversy has also emerged at
Amazon’s operations in Germany, where the company was accused of
using neo-Nazi thugs to intimidate immigrant workers at the facilities.
Amazon,
it appears, will stop at nothing in its quest to dominate online commerce.
