Public officials would be wise to tell Amazon “no deal” when it comes to granting subsidies for opening warehouses in their communities, according to a new study released last week by Good Jobs First, a self-described non-partisan resource center that tracks subsidies in order to promote accountability in economic development.
The study, “Will Amazon Fool Us Twice? Why State and Local Governments Should Stop Subsidizing the Online Giant’s Growing Distribution Network,” written by Thomas Cafcas and Greg LeRoy, details how Amazon continues to receive hundreds of millions of dollars in economic development benefits as it replaces its sales tax avoidance business model by methodically extracting “lucrative taxpayer subsidies” for opening warehouses in states across the country. In the report, the authors take a detailed look at three communities — San Marcos, Texas; Chattanooga, Tennessee; and Shakopee, Minnesota — where Amazon’s promises of good jobs and an economic benefit fell far short of expectations.
Since the start of 2015 alone, state and local governments have committed at least $241 million in subsidies to Amazon facilities, the authors report. These come in the way of property tax abatements, infrastructure improvements, training grants, corporate income tax credits, and even sales tax exemptions on building materials, machinery, and equipment, among other methods. One of the biggest reasons why providing this money to Amazon is a bad deal is because, as it moves to a same-day delivery model, Amazon would likely open warehouses in those locales even without incentives. “Public officials must recognize their communities’ value. They need to recognize that the prize on the bargaining table isn’t an Amazon facility: It’s more access to the local market for another aggressive retailer growing at the expense of existing retailers,” the authors stress.
“First, Amazon avoided collecting sales taxes to aggressively gain market share,” said co-author and Good Jobs First executive director LeRoy in a statement. “Then in some states it started parlaying nexus settlements, agreeing to collect sales taxes where it had a physical presence, into economic development subsidy packages worth more than $600 million. Now, incredibly, it is back for a third round of tax breaks for the facilities it must build for its same-day delivery service.”
LeRoy says that, while some public officials realize that subsidizing Amazon is bad for their community, it is “time for all of them to say no more deals.”
In the report, the authors note: “For years, Amazon relied on a controversial tactic to keep its prices lower than bricks-and-mortar competitors: avoiding the collection of the sales tax…. This explains why Amazon first located its fulfillment centers in states that have either small populations or no sales tax, or in the case of states such as Delaware and New Hampshire, both.
“Amazon no doubt knew that its sales tax advantage couldn’t last forever, and that is especially true now that its same-day delivery business model expands into more markets.”
As Amazon realized its sales tax avoidance days were over, the online retailer used “the prospect of that new tax revenue, and more warehouse jobs, to negotiate for economic development subsidies to underwrite the cost of expanding its distribution system,” the report states.
While this has been good for Amazon, it has not, and will not, benefit communities, the report contends. The Good Jobs First study concludes that “elected officials would best service the public interest by telling Amazon: no more deals.”