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Business

What Amazon's HQ2 means for taxpayers in New York and Virginia




Wins the battleground of the Amazon

AMZN, -0.35%

Other headquarters came with a steep price tag – $ 3.4 billion.

It is the total amount of tax incentives and grants that state and local officials in New York and Virginia offered the tech giant as part of their bid to remember HQ2 in Long Island City, NY and Arlington Country, Va. Respectively.

Amazon confirmed Tuesday that it had chosen the two places from its short list of 20 cities across the United States and Canada, and completed a bidding process that took more than a year.

"What we've seen is one of the most public site selection processes in recent years," said Jared Walczak, Senior Policy Analyst at the Center for State Tax Policy at the Tax Office. "Taxpayers look under the cover of the kind of negotiations that take place every day. "

This is far from the first time Amazon has received a massive payment from state or local authorities. Prior to the HQ2 announcement, Amazon had received about $ 1[ads1].61 billion in subsidies from state and local authorities over the past two decades, according to data obtained by Good Jobs First, a lawyer who traces corporate responsibility.

These subsidies were used to persuade Amazon to build distribution facilities, data centers, regional headquarters and Whole Foods supermarkets, including jobs.

Should taxpayers benefit by HQ2?

When announcing its choice for HQ2, Amazon played the benefits residents of Long Islan d City and Northern Virginia will receive as part of the offers. In New York, Amazon will create space on its campus for a technological start-up incubator and for artists and industrial companies, donate space to a public school and invest in infrastructure and green spaces.

Moreover, opponents of the plan point out The expected increase in tax revenues with 50,000 Amazon workers earns an average salary of $ 150,000 annually – plus countless other workers lured to these cities thanks to the additional companies and jobs that can follow Amazon.

However, critics of the HQ2 plan argue that these benefits will be difficult to come up with thanks to the large size of tax breaks and the grants Amazon itself receives. "Taxpayers should be very skeptical about the incentives that these will ever pay for themselves," said Walczak.

If you focused on creating a more competitive business tax environment instead of targeting a white whale, you would have a much better system in general and it will likely create more than 25,000 jobs. & # 39;


-Jared Walczak, Senior Political Analyst with Center for State Tax Policy at the Tax Fund.

Instead, Walczak argues that residents and local businesses will benefit more from overall tax reform rather than large tax mistakes for individual businesses. "When states choose a particular company and throw money on them, someone has to pay for it and you have other options," he claimed. "If you focused on creating a more competitive business tax environment than targeting a whale whale, you would have a much better system in general and it will likely create more than 25,000 jobs."

However, the majority of tax breaks and grants that Amazon will receive is conditional upon the company fulfilling its promises of employment and occupation of commercial property.

For this purpose, the offers Amazon were accepted from New York and Virginia "put in the least harmful way" Friedfel said. These requirements prevent Amazon from reaping the benefits of incentives and then just leaving the ship.

Some have claimed that the online store was always founded to choose New York City and Washington, DC area since Amazon's founder Jeff Bezos owns homes in these places. As Politico had previously reported, Google

GOOG, -0.25%

and Facebook

FB, + 0.43%

both opened major corporate offices in New York City without having government tax evasion. (Facebook confirmed MarketWatch that no incentives were received, Google did not return a request for comments.)

In the long run, the battle for HQ2 could have serious taxpayers' grenades if other companies choose to replicate Amazon's process. However, Walczak said the unusual open process Amazon promoted to HQ2, that Americans also had the opportunity to investigate the terms of the offers that were made.

The acts of northern Virginia and new york have already received setbacks from two democratic legislators, new york city council speaker corey johnson and incoming representative Alexandria Ocasio-Cortez. "It may cause selected officials to consider agreements like this more carefully," said Walczak.

Seeing the HQ2 incentives

For Long Island City, Amazon will receive $ 1.2 billion in refundable tax credits through the New York State Excelsior Jobs Program, which will be distributed if the company creates 25,000 net new jobs in New York State by the end of June 2028. New York has also promised a capital grant of $ 505 million to refund Amazon for the costs associated with building its office space.

Amazon said it also plans to exploit incentives through the New York City Industrial and Commercial Abatement Program and the New York City Relocation and Employment Assistance Program (REAP). Unlike the incentive offered by government officials, these city programs are available to all businesses that meet their specific requirements. Tax breaks through REAP, for example, can add up to $ 900 million.

For Arlington County, Virginia's Commonwealth Government has offered $ 750 million in grants, spread over two phases. The first $ 550 million will be paid from 2024 to 2030 based on Amazon employing the promised 25,000 new jobs. An additional $ 220 million will be given to Amazon if it adds another 12,850 new jobs. Arlington County also flipped into $ 23 million in the form of grants to cover taxes related to hotel stays.

State and local legislators in both New York and Virginia have also offered to invest money in infrastructure and other improvements.

How Amazon's HQ2 Incentives Boost Up

While $ 3.4 billion is nothing to sniff, Amazon had gradually gotten better deals. Maryland offers $ 8.5 billion in tax and infrastructure fees to Amazon as part of the bid for Montgomery County, while New Jersey was offered $ 7 billion in incentives as part of the Newark proposal.

"These regions were not chosen by Amazon for tax breaks," said Heather Redman, managing partner of venture capital company Flying Fish Partners and former chairman of the Seattle Metropolitan Chamber of Commerce. "These areas were chosen because this is where the talent now lives or wants to live."

However, Amazons HQ2 incentives are set to be one of the largest in the country's history, Walczak said. This compares with other large, large incentive packages companies that have received to build large manufacturing facilities or headquarters:

1. Boeing

BA, -2.11%

(Washington, 2013): $ 8.7 billion

2. Alcoa

AA, + 2.94%

(New York, 2007): $ 5.6 billion

3. Foxconn (Wisconsin, 2017): $ 4.8 billion

4. Boeing (Washington, 2003): $ 3.2 billion

5. Amazon (New York for HQ2, 2018): $ 2.6 billion

6. General motors

GM, + 0.67%

(Michigan, 2009): $ 2.3 billion

7. Ford Motor

F, + 0.53%

(Michigan, 2010): $ 2.3 billion

8. Sempra Energy

SRE, + 0.53%

(Louisiana, 2013): $ 2.2 billion

9. Nike

In fact, mega agreements or incentive packages that cost more than $ 75 million have become increasingly common in recent years. Between 1976 and June 2018, there have been almost 400 offers of this size, according to Good Jobs First.

While some of these packages were offered to large companies to encourage them to move a corporate office or factory, legislators in other cases have struck these agreements to persuade companies to stay where they already were.

As for the disagreement in size between Virginia and New York's offerings – despite both locations being expected to receive the same number of jobs – a number of factors are at stake. New York has historically been inclined to provide tax savings and other agreements to entice companies. With 33 so-called mega deals, it has more on the books than any other state, except Michigan, which has 35.

"New York has a story about giving out more collectively and per person," said Dave Friedfel, Director of State Studies at Citizens Budget Commission, a non-political, non-profit society organization that lobbies for changes in government finances in New York.

Further factors such as higher lifetime and higher taxes in New York compared to other places (including Virginia) also contribute, said Walczak.



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