If taxes sway Amazon HQ2 decision, data shows Triangle has an advantage

RESEARCH TRIANGLE PARK – In the ongoing selection battle to determine where Amazon HQ2 and its 50,000 jobs will land, the Research Triangle region has a bottom-line profit advantage over its competitors for the Internet giant to consider.

Taxes.

A new report published by The Seattle Times about the importance of taxes in Amazon’s search for a second headquarters shows that Raleigh and Indianapolis have the lowest impact.

According to data compiled by the Anderson Economic Group, a Chicago-based consultancy, the cities would hit Amazon profits at a rate of 7 percent in combined state and local taxes.

North Carolina’s tax burden is headed lower, too.

According to The Tax Foundation, the state’s top marginal income tax rate is scheduled to fall to 5.25 percent from 5.49 percent and the corporate tax rate will drop to 2.5 percent from 3 percent in 2019 in the budget passed last year. The cuts over the past several years combined with earlier ones have reduced top individual rates from as high as 7.75 percent and corporate rates of 6.9 percent.

Even at 7 percent, that’s more than 4 percentage points lower than the nation’s capital, which has been reported as a likely choice given Amazon’s presence there already, the fact it is the seat of political power, and that Amazon founder Jeff Bezos owns a home in the city plus The Washington Post. The Raleigh rate also is more than 2 points lower than that of Seattle where Amazon is based.

A broader index of taxes compiled by the Tax Foundation ranks North Carolina 11th overall for 2018 with the corporate rate ranking No. 3 and unemployment insurance taxes (another key cost for employers) ranking No. 6. Property taxes, however, came in much higher at No. 32 with sales taxes at No.20 and individual rates at No. 13.

Lower taxes would mean millions in savings for Amazon.

And any tax incentive package offered Amazon by North Carolina could include other benefits such as worker training, lower utility rates, rebates on state withholding taxes, and maybe even free land.

Hard bargaining?

Whatever the current rates in any locality, the newspaper sounded a warning: Amazon is likely to seek more benefits.

“HQ2 cities listen up: Amazon flexing its political muscle sends a message not just to Seattle,” the headline reads.

Amazon is playing hardball with its home city over a proposed “head tax” on employees, delaying projects worth several thousand jobs.

“Amazon’s blowback also echoes a note it sounded in announcing a search for a second headquarters: the importance it places on a stable, business-friendly climate,” the newspaper added.

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Last week, Amazon also announced expansions in Boston (which is also an HQ2 finalist) and Vancouver, British Columbia.

North Carolina ranks consistently near the top of economic development recruiting studies such as Site Selection Magazine for having a friendly business environment that includes tax rates.

The Republican-controlled General Assembly also has made numerous changes in tax policy since 2015, which the Anderson Economic Group cites in its analysis.

What the data does not make clear is whether the tax information is based purely on Raleigh and Wake County or includes Durham and Durham County and Orange County. Amazon has said that it is considering sites across the Triangle, not just Raleigh.

Negotiating taxes, benefits

Amazon is expected to use tax inducements, such as lower property tax rates or employment taxes and taxes on profits, as it begins to whittle its declared list of 20 metro areas toward a winner sometime this year.

“It’s a core part of their strategy … Asking states and cities for handouts and a competitive advantage,” Stacy Mitchell, co-director of the Institute for Local Self Reliance, told the Seattle newspaper. The story described the institute as an advocacy group that has been critical of Amazon.

The company also spelled out in its site requirements that it wanted access to such things as an airport with a certain list of flights (RDU International has told WRAL TechWire it met that requirement) as well as mass transit. Some of the finalists have already promised transit improvements. The Triangle does have a plan for mass transit from Raleigh across the Triangle to Durham and Chapel Hill.

Several states have already offered substantial packages of incentives and investments for such things as infrastructure, topped by Maryland and New Jersey at some $8 billion and $7 billion respectively.

Senator Floyd McKissick from Durham told WRAL TechWire that the numbers are “mind boggling and staggering.”

North Carolina and local Triangle officials are mum about ongoing negotiations with Amazon, citing a non-disclosure agreement.

However, they have said in the past that the state is prepared to offer an incentives package built around legislation passed in 2017 to help in landing what would be called a “transformative” business investment.

The state was prepared to give a Toyota and Mazda automotive plant up to $1.5 billion, for example. That plant with 4,000 jobs ended up going to Alabama.