Amazon.com Inc. is planning to partner with at least one California city to collect sales taxes from the entire state. Most of the collected tax money would go back to Amazon.
The company is building warehouses in Patterson and San Bernardino, California. Under state law, purchases made by customers anywhere in the state can then technically be declared as occurring at those two warehouses, and those two cities will receive all the local sales taxes.
That will be about 1 percent of the price of every Amazon.com purchase in the Golden State.
As an “incentive” to Amazon, San Bernardino is negotiating to return up to 80 percent of the tax money to the company for several years.
‘Pirate Tax Revenue’
Cities have “gone from smokestack chasing to cash-register chasing” for sales taxes, said Greg LeRoy, executive director of Good Jobs First, which studies economic development around the country. “And if the busy cash registers pirate tax revenue from the next suburb over, all the better.”
Lenny Goldberg has worked for years as a lobbyist for the Northern California Independent Booksellers Association. He calls the Amazon rebate “a violation of any notion of what we mean by a tax. You think your local tax is going for your local cops, and it’s not. Not only is it not going for your local cops, it’s not going for anybody else’s local service. It’s going into Amazon’s pocket.”
Rebate in Patterson?
The Los Angeles Times reports the small city of Patterson is also considering a large sales tax rebate to Amazon. But Patterson Mayor Luis Molina said his administration has not discussed rebates with Amazon and “did not provide any tax incentive.”
However, Molina said he would be willing to have such discussions.
In September 2011 California agreed to let Amazon delay collecting sales taxes until this fall, and the company agreed to build two warehouses in the state.
Amazon has similar deals with New Jersey, Virginia, Indiana, and South Carolina, and is negotiating with Florida.
Struck Down in Illinois
An Illinois judge recently struck down a law forcing Amazon to collect sales taxes there.
Illinois tax consultant Susan Russell said many big-box stores are just starting to sell through the Web, and the revenue is “going to be huge down the road.”
California represents about 10 percent of online sales for most companies in the United States, she said, and governments see collecting these taxes as an “easy way” to shore up their budgets.
“Local governments in California have very little tools for economic development in their communities,” said George Runner, a member of the California Board of Equalization. “One they do have is this ability to negotiate a portion of the sales tax.”
In California, local sales taxes are determined and collected by the state. Randall Holcombe, a research fellow with the California-based Independent Institute, points out municipalities such as San Bernardino might be saying in effect the tax is too high. A rebate is one way to lower it.
He believes there’s a “seen versus unseen effect here. On the one hand you see that you cut the tax for Amazon and they locate their warehouse in your city. What you don’t see is that the higher taxes everybody else pays discourage their businesses.”
Holcombe argues cities should avoid “tax discrimination” or “special concessions” and focus instead on lowering taxes in general.
‘Redistribution, Not Rebate’
In an email to Budget & Tax News, certified public accountant Karen De Coster argued, “The whole tax rebate bonanza is properly defined as a redistribution scheme and not a ‘rebate.’ Essentially, these California cities are acting as a redistribution mechanism that will allow the world’s largest online retailer to collect sales tax from its customers while keeping that revenue (or the majority of it) for its own coffers.”
But Runner says because such rebates occur at the local level they are “far more accountable than how tax dollars are spent by Sacramento or Washington.”
Mike Reid ([email protected]) is primus inter pares at Invisible Order, a libertarian editorial-solutions company.