When Amazon expands, like it wants to in Florida, state and local governments practically line up to offer to pay the company to move.
Virginia officials approved $4.4 million in taxpayer subsidies so Amazon could build two warehouses in the state. California reached a deal where the online company was free from sales taxes for a year, saving about $200 million. Texas officials forgave $269 million in back sales taxes to get a new warehouse. New Jersey officials put up millions more in breaks.
All the deals were cut in the past three years. All for a company that had $61.1 billion in sales last year.
On Wednesday, Hillsborough County commissioners will consider a package that could include up to $7.5 million in local and state tax breaks for Amazon to build a new warehouse in Ruskin for 1,000 employees. Hillsborough’s offer was disclosed last week, shortly after Gov. Rick Scott announced that Amazon wants to create 3,000 jobs in the state by 2016.
Yet enticements are so small in relation to Amazon’s multibillion-dollar business that analysts don’t even bother studying their affect on expansion.
“They are a speck on the radar,” said Matt Nemer, a retail analyst for Wells Fargo Securities in San Francisco. “They’re just not big enough to make a difference.”
Amazon officials won’t disclose the role tax incentives play in deciding where to expand, or even if they request them. But if there was ever a case in which a company didn’t need an incentive to come to Florida, it might just be Amazon.
Founded in 1994, Amazon for years curtailed its physical presence in states to avoid paying a sales tax. But the company changed course in 2010.
Amazon now has 40 facilities in 18 states — the nearest one in South Carolina, and is continuing to look for places to grow. Many of the products Florida consumers buy come from a Memphis, Tenn., warehouse, which is 1,000 car miles from Miami. The logistics make it difficult for the company to make “next-day” or “two-day” deliveries to Florida, let alone realize what could be future plans to expand its grocery service, which the company offers in Seattle and Los Angeles.
Florida fits into Amazon’s growth plans, reduces shipping costs and gets the company closer to consumers. Put simply, Amazon needs Florida.
“Given the geography of Florida, it makes sense for Amazon to have some sort of physical presence to serve a market that is otherwise spread out,” said Scott Tilghman, a senior analyst for B. Riley & Co. in Boston.
As it grows, Amazon is willing to forgo the sales tax exemption it has enjoyed for two decades. A 1992 Supreme Court decision allows Internet retailers to skip paying a sales tax if they don’t have a physical presence in the state. But as online sales have steadily increased, brick-and-mortar retailers like Wal-mart and Target have increased pressure to eliminate the exemption for online retailers.
Last year, the U.S. Senate passed legislation that would allow states to collect a uniform sales tax from online transactions, even from companies with no physical presence. The legislation, which has yet to pass the House, is supported by Amazon.
“It’s an interesting tactic for the company to come out in support of that because it doesn’t have a shot in passing,” said Nemer, the Wells Fargo Securities analyst.
Amazon’s support partly reflects its experience with expanding into states that charge a sales tax, such as Texas and California. Consumers barely noticed the tax, which was offset by lower shipping costs and shorter delivery times. And sales actually went up.
“Amazon collects sales tax or its equivalent in more than half the geographies where we do business, and our business is thriving in those geographies,” an Amazon spokesman, Ty Rogers, said in an email. “As analysts have noted, Amazon offers the best prices with or without sales tax.”
If anything, the sales tax provides an opportunity for Amazon that other online retailers aren’t comfortable with, said Steve DelBianco, executive director of NetChoice, an e-commerce trade group. Amazon has developed software that helps the company pay the varying sales taxes, a service that it can provide to smaller online outlets — for a fee.
“Most medium and small providers will have to shift to Amazon’s platform to handle its orders because the administrative burdens will be too much,” DelBianco said. “But they’ll have to pay Amazon 10 percent to 15 percent off the top of any transactions.
“This is going to do to online retail what Wal-mart did to Main Street retail,” he added.
So why are tax incentives necessary?
Most likely because governments are fighting over the prospects of added jobs, analysts say.
Besides Hillsborough County, local officials in Ocala, Winter Haven and Jacksonville already have made it know they’d welcome an Amazon warehouse.
The incentives, Tilghman says, are “a way for states and local governments to say, ‘Pick me.’
“It doesn’t matter that Amazon doesn’t need them.”