So wow. Color me completely shocked. Okay, not completely. But shocked.
South Carolina legislators said no to Amazon.com’s bid for a sales tax exemption. And it was a big no. The vote wasn’t even close: 71 no votes to 47 yes votes. It was a pretty sound denial.
The plan, as outlined a few days ago, would have allowed Amazon to operate without collecting sales tax in the Palmetto State. In exchange, Amazon.com would agree to build a distribution center (thanks to free land and tax breaks) in Lexington County, SC. Without the exemption, Amazon.com has threatened to jump ship. It would appear from their actions that they’re planning on sticking to their guns. Reportedly, negotiations and contracts related to the planned distribution site have been called off as a result of the vote.
The original promises to the company were said to have been made by former Governor Mark Sanford (hey guys, I said “former”). But the current administration has made no such promises, angering some supporters of the project. New Governor Nikki Haley has said that she will not play favorites when it comes to businesses. Interestingly, the distribution center was to be built in her former legislative district from her days in the House.
Whoa. That’s some backbone for you.
Oddly enough, Haley’s own party argues that since South Carolina isn’t collecting any sales tax from Amazon.com sales now, there’s nothing to lose. Kind of a strange argument when you think about it since it’s not exactly a true statement. South Carolina does have a Use Tax which imposes a tax on goods purchased without paying sales tax, including sales made over the internet. In fact, on their own web site, the SC Department of Revenue advises taxpayers:
Contrary to popular misconception, the federal Internet Tax Freedom Act governs taxation of access to the internet through your internet-access provider. Goods purchased over the internet are not tax free.
And here’s what you and I both know about that statement: taxpayers ignore it. In fact, forcing the merchant to collect would, in fact, boost revenue in the state because taxpayers could no longer ignore the tax if it were imposed at the original sale. I’m not claiming that it’s the ideal solution to the budget crisis but I am saying that it’s disingenuous to imply that the loss of revenue as a result of noncompliance is equivalent to a legitimate tax exemption.
If you’re scratching your head about this whole thing, you’re not alone. Many in South Carolina don’t know what to make of all of this. New jobs are a good thing in a state faced with high unemployment. But at what cost? The state is also struggling to find revenue and taxpayers aren’t exactly thrilled about the idea of shouldering the burden while it appears that corporations like Amazon.com are getting a break. That leaves the Governor and the legislature wondering what to do as Amazon.com makes a lot of noise about packing up and leaving town.
This is perhaps why Amazon.com is so successful. They have, so far, been able to get their way when they scream loud enough. It’s kind of like a form of corporate blackmail or a toddler’s tantrum, depending on your frame of reference.
South Carolina might be the first state to say no to them loudly enough to make an impact. But at what cost?
And wait, is that the sound of both North Carolina and Georgia rubbing their hands together…?
Exempting businesses from taxes has long been a strategy for bringing in out-of-state businesses. However, what is the long term good, if they won’t pull their own weight in the state? If you let the big box business come into an area, decimate the other businesses, and when their tax holiday expires, they up and leave, you make the area worse off with dilapidated buildings and more unemployment. States, cities and counties need to be smart and think long term. No more sweetheart deals. Lower the taxes for all businesses and individuals.
Even without the sales tax exemption, the offer by South Carolina was generous. The state has to balance the need for new jobs in a bad economy against the principle of tax fairness. South Carolina is still a great place to do business and Amazon would show its resolve to be a good corporate citizen by continuing with the project.
Amazon is definitely pulling out, per the Charlotte Observer:
http://www.charlotteobserver.com/2011/04/27/2253572/sc-house-rejects-sales-tax-break.html
I agree with Michael that South Carolina’s overall package was still generous even without the sales tax exemption, and I applaud the state legislature for standing firm; would that more politicians showed that kind of backbone.
Thanks Mike. The drama is rich, is it not? I love the bit about how now no one will come to SC for 10 years. Really?
Every single story/editorial I’ve seen on this issue leaves out an important fact: South Carolina would collect payroll/income taxes for each of the workers employed at the facility. It wouldn’t be a total loss to the state.
Thanks Doug. I’ve seen several studies that project an overall gain to the state (I think I read $9 million over the 5 years). I don’t necessarily think the opposition is tied to the idea of a net loss in revenue but rather the circumstances of being forced into concessions that the state doesn’t feel it can justify right now.
Again, I’m not saying this is the right thing to do. But I am impressed by the state’s backbone.
I’m sure they would be welcome here in New Hampshire. No sales tax at all. They’d just have to shovel a little snow in the winter!
I’m in SC. What is appalling is the state reneging on Sanford’s promise. A promise is a promise, and the legislature didn’t holler about no sales tax when the deal was offered. That was the time to fuss. We hold one of the highest unemployments in the nation. That deal represented 3000 FT and PT positions, which we sorely needed. What kills the deal was the local retailers – lead by Walmart – fussing about not treating online retailers like brick and mortar. But they do not compete for the same products. If I buy at Amazon, I’ll buy at Amazon. Apples and oranges. The sales tax doesn’t sway me or anyone else. Every single deal, from Boeing to UPS to BMW, cut its own deal with state to open shop. Are we supposed to now give everyone the same deal – to be fair to the current businesses in place? Seriously? Then’s what’s the point of having a Dept of Commerce courting business? “Here’s our rules. Follow them or you aren’t welcome.” In the meantime, bread lines form.
The state’s missing out on the purchase power of those jobs, so many contracts with local businesses, and a sorely eneded shot in the arm to the airport, which already missed out on Southwest and other opportunities. UPS has a headquarters at that airport and has been doubting it’s viability in this economy, but was willing to wait and see what happened with Amazon to make any decisions.
The new governor, whom I voted for, took a sissy way out and said she’d vote for it if the legislature pushed it through, but wouldn’t push one way or the other. Sanford was her mentor, BTW. And now she takes credit?
Easy to say bully for SC, but the whole situation was handled poorly, and yes, we now fear that other major businesses will wonder . . . will SC keep its promises or not when cutting deals. Businesses drove this legislative vote. A lot of the votes driven by threats of financial support come next election. However, the people vote. If I were unemployed, I’d be asking my congressman what gives. My congressman voted for Amazon, or I’d be voting his fanny out of office next time. The people aren’t represented as depicted by those voting numbers in the House.
Hope, I sympathize with your state’s situation but I’m with Kelley on this. I also understand your frustration (a deal is a deal). However, this kind of deal would probably pressure other states into similar incentives. The law of the jungle would see to that. And if enough other states felt compelled to offer similar deals, it seems possible the process to devolve into a full-fledged race to the bottom. The result of which would be that all of the states’ sales tax collection abilities could become collectively impaired.
Our state (PA) is not in as bad shape as some other states but the effects of having to compete against an Amazon type incentive strategy, if adopted by other states on a wide ranging scale, could be devastating. Especially since PA relies upon sales tax collections for roughly a third of its general fund budget.
It’s easy for people not living in the area or against it, they all probably have jobs. They don’t have to worry how they’re going to pay sce&g, their rent or house payment, getting their car repossessed. If they want tax breaks then close your retail store, build a distribution center and sell online only like Amazon.
Now what could have the state benefited? 1200 people earning an average of $10/hr. at 40 hours/wk = state income tax collected $1,747,200/yr. Also what about other jobs it would have created, gas stations, restaurants etc.., in which the employees shop would have to hire more employees to accommodate the increase in business. It would have been a domino effect with everything to gain.
I guess they didn’t think about how unemployment in the state would have dropped, less would be in the welfare lines or on food stamps, now thanks to this group the taxpayer still has to carry this burden and pay for those to live of state tax dollars. Maybe his group can chip in and provide 1250 jobs. Also what about the state income tax dollars lost from the payroll of these new jobs and the gas tax for the fuel they would have bought going to work?
How many of the construction workers that were building Amazons distribution center will be laid off, due to no work?
So we eelcet a Gov. who says the people of the state should have more power in decision making,if so let the people vote. But she weasles out saying she won’t vote either way and leaves it up to the house.
Now the state is trying make up for the loss of Amazons $100 million investment in the state.
South Carolina lawmakers said Thursday that the state should send auditors across the country to collect unpaid taxes from multinational corporations as part of a proposal that aims to help balance the state’s $5.8 billion spending plan.
The plan would give the state Revenue Department $4 million to hire, equip and send auditors around the nation to audit companies in an effort to collect at least $80 million in unpaid South Carolina taxes. The proposal is part of the patchwork of cash and cuts that would keep South Carolina operating in the fiscal year that begins July 1.
source: The State News 4/2011
SC should have kept her promise. Regardless of the tax incentives, the state would have benefited greatly because of the overall impact and presence of
Amazon. This is a major loss for the state right now. Perhaps we will make up for it in the near future.