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Area Development - Site Selection, Facility Planning and Workforce Development

Amazon.com Continues to Open New Facilities in "Business Friendly" States While Battling Tax Issues With Other States

07/12/2011
Online retailer Amazon.com has announced it will build its fourth facility in Arizona, a 1.2 million sq. ft. distribution center, and create more jobs on top of the 3,000 positions already created by its other three locations in Phoenix.

According to AZ Commerce Authority CEO Don Cardon, Amazon's expansion and investment in Arizona demonstrates that the state offers "a highly skilled workforce and a business-friendly approach, which is increasingly appealing to companies representing the most innovative and passionate sectors in the world."

In May 2011, the Phoenix Business Journal ran an article quoting state tax analyst Hsin Pai as saying Amazon has not been collecting sales taxes on orders filled at any of its three Arizona locations; those taxes could add up to millions of dollars. "Arizona officials have been reluctant to push the issue, as Amazon is creating jobs in a tough local economy," added the newspaper. The company has shipped from Phoenix since 2007.

A July Phoenix NewTimes blog-editorial reported that David Leibowitz, spokesman for Phoenix Mayor Phil Gordon, said Amazon.com has a sales tax license on file with the city of Phoenix. "He also confirmed no deal was struck at the Phoenix level about taxes," stated the paper's blog story. "[W]hether the company actually pays city sales tax is a question that can't be answered due to taxpayer privacy rules."

Amazon spokesman Todd Fogarty said the company isn't required to collect taxes since it's only fulfilling orders from its Arizona locations, "and so we don't have a physical presence" in the state.

The news of the fourth Arizona facility comes on the heels of Amazon's recent announcement to open its fourth distribution center in Indiana. When complete, the company will have nearly 3.4 million square feet of warehouse space in the Hoosier State. (Earlier this the online bookseller made similar announcements for new facilities in Tennessee and South Carolina as well).

However, as the economy worsens, the controversy over Amazon's tax interpretation seems to be spreading. Many money-strapped communities are asking, "Should Amazon's e-commerce sales be taxed if the company has a physical presence here?" Some states already have decided the answer is "yes" (e.g., New York, North Carolina, South Carolina, Tennessee, Texas and California) and have revved up efforts to collect sales tax from the online retailer.

For example, this past June Texas state lawmakers said "no" to Amazon's proposal to invest $300 million in a half dozen facilities and employ 6,000 if Texas would allow it to operate four-and-a-half years without collecting state sales tax. Currently, Amazon is fighting a $269 million sales tax bill regarding its Irving, TX, operations.

In California, the online giant recently terminated contracts with residents enrolled in its Amazon Associates Program due to a new law signed by Governor Brown (to go into effect this fall). The company has stated that this law specifically imposes the collection of taxes from consumers on sales by online retailers--including but not limited to those referred by California-based marketing affiliates like its Associates--even if those retailers have no physical presence in the state.

"We oppose this bill because it is unconstitutional and counterproductive," said Amazon in a letter to California Associates. "It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue."

The company also has terminated associates contracts in other states (e.g., Colorado and North Carolina) due to similiar tax feuds with their taxing authorities.

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