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Very few businesses allow taxes to shape their business strategy as much as Amazon.com. Amazon has shuttered a Texas warehouse, ended partnerships with businesses in at least three states, and sued the state of New York — all because of state tax laws it doesn’t like. When the South Carolina House rejected a massive tax break package designed to lure Amazon.com within its borders last week, that state became just the latest victim of one of Amazon’s tax-induced temper tantrums.
The drama in South Carolina all started when former Governor Mark Sanford and his Commerce Department told Amazon that they would try to score the company a lucrative tax break package in return for Amazon’s promise to build a distribution center in the state. The most important component of that proposed package was an agreement that, despite having a physical presence in the state, Amazon.com would not be required to collect sales taxes on purchases made by South Carolina residents.
Unsurprisingly, this proposal angered virtually every other retailer in the state, from “mom and pop” shops to Wal-Mart, all of which are quite sensibly required to assist South Carolina in collecting the sales tax owed on each sale they make.
Last week, these retailers, working in combination with Tea Party activists (who, for once, actually recognized that “big government” can indeed extend its influence through new tax breaks), were able to defeat the legislation in the House in a lopsided 71-47 vote. Gov. Nikki Haley helped contribute to the proposal’s defeat, rightly announcing that its passage would be “a slap in the face to every small business we have.”
Amazon responded by canceling millions in procurement contracts, removing South Carolina job postings from its website, and announcing that the million-square-foot distribution center currently under construction will probably be “put into mothballs” after its completion.
Reaction to news of Amazon’s departure in the Palmetto State has understandably been mixed. But South Carolina’s largest newspaper, The State, did run a nice editorial pointing out that “this doesn’t have to be a loss for our state in the long or even medium term.” The editorial rightly argues that lawmakers should build on this development by limiting narrow tax giveaways, evaluating existing economic development programs, and investing in a skilled workforce and other broad-based quality-of-life initiatives that employers value.
South Carolina might get the last laugh if it follows the advice contained in this editorial. Amazon is currently pursuing a business strategy that is far more concerned with state tax law than logic would dictate. The vast majority of businesses very sensibly do not regard taxes as the be-all and end-all of a good business climate. Many other factors, like the quality of a state’s workforce, roads, and public safety measures, are often much more important to a company’s bottom line.
With more states growing tired of Amazon’s bullying and temper tantrums, it appears unlikely that a business strategy that regards taxes as an unbearable burden with no upside will remain profitable for long.