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Revisiting the Texas-Amazon sales tax deal

The Statesman looks back and concludes it was a pretty good deal all around.

Amazon

In 2012, the state rolled the dice on a controversial deal with e-commerce giant Amazon.com.

To end a two-year battle, Texas said it would drop a $269 million sales tax bill due from the Seattle-based company in exchange for an incentive deal, among other agreements.

Amazon said it would begin collecting sales taxes within 60 days and create 2,500 jobs in Texas and invest $200 million in the state by 2014.

Now, as the company says it’s exceeded those benchmarks, state officials and economists say the agreement was the right call for Texas.

“I believe Texas benefited from the deal with Amazon. The agreement meant Amazon began collecting and remitting taxes to the state, which the comptroller’s office felt were legally due,” Texas Comptroller Glenn Hegar told the American-Statesman. “The agreement also allowed Amazon to start building warehouses and to greatly expand their physical presence in the state, which was largely beneficial to the economy.”

This summer, the Internet retailer told state officials it reached more than 3,500 employees in Texas and made more than $300 million in capital investment in Texas by the end of 2014, according to documents filed with the comptroller’s office.

Amazon also paid an undisclosed amount to settle the matter in 2012.

With the deal, Texas ended a two-year fight seeking the company’s uncollected sales taxes, and Amazon began collecting on July 1, 2012 — potentially adding millions of dollars in new revenue to state coffers in coming years. Now, current figures seem to prove that out.

An American-Statesman analysis of data from the comptroller’s office shows the state’s sales tax collections have risen by hundreds of millions of dollars since Amazon.com began issuing the levy on Texas residents.

Since July 2012, sales tax revenue in Amazon’s sector has gone up more than $325 million, comptroller data shows. While state law prohibits the comptroller’s office from releasing sales tax collections by individual companies, it’s clear a significant portion of that increase is a result of Amazon’s Texas sales.

Although Hegar wasn’t the comptroller at the time of the 2012 deal, he says the state has benefited from Amazon’s presence.

“We welcome and appreciate Amazon like we do all the retailers in our state,” Hegar said in weighing the company’s role in Texas today. “We encourage and benefit from the economic activity generated by both their physical activities in the state through capital investment and job creation, and also greatly appreciate their following the law by collecting and remitting taxes from our citizens when selling taxable items.”

See here, here, and here for some background. I supported this deal back then, and I’m glad to see it has basically worked as intended. The rationale from two decades ago for making online sales tax-free has long since been rendered irrelevant, and the effect of that policy has become increasingly expensive for state and local governments. It just made sense for Amazon and other online retailers to start charging sales taxes. A few years later, this isn’t even controversial any more. Like I said, a good outcome and I’m glad to see it.

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One Comment

  1. Matt says:

    Amazon did a fantastic job of hoodwinking the state into paying it to do what it would have done anyway. And apparently you were fooled as well.

    If a business has a “nexus” – essentially a physical business presence – in a state, then it has to collect sales tax. What is obvious to anyone who looks at Amazon’s business is that it was going to open a physical presence in Texas whether it got the tax relief or not.

    Amazon’s entire business model is based on rapid revenue growth – and they have already essentially defeated all other online retailers. The only way they are going to be able to keep growing is to compete with local retailers, who can offer “buy it today, get it today”. For a great perspective on this, take a look at:

    http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works

    It was obvious to anyone who did even a lick of analysis that Amazon’s next move was going to be same day delivery, which requires local warehouses, which creates a tax nexus and means collecting sales tax. There is no way Amazon was going to be able to execute this strategy without including Texas – it was just a matter of when.

    This means that the only advantage to the settlement was that the warehouses opened (and the jobs arrived) a few years earlier – and possibly the overdue sales tax was paid earlier as well, depending on the strength of the state’s case. Thus these calculations are pretty bogus, unless you only include the value of having the jobs and sales tax a few years earlier, and Amazon almost certainly took Texas for a ride.

    If Texas is such a great place for businesses, we don’t need to give anyone subsidies or special deals, especially not powerhouses like Amazon.

    We shouldn’t feel bad though – state official are typically way out of their league when negotiating with these companies:

    http://fortune.com/inside-elon-musks-billion-dollar-gigafactory/

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