Amazon Figures Out How To Funnel California Sales Tax Back Into Its Own Pockets

Amazon has been battling against having to pay state sales tax for awhile, and now it seems to have dreamed up the perfect scheme: It’ll pay sales taxes in California starting next fall, but by setting up shop in two cities, it’ll manage to funnel that money right back into its own pockets.

Here’s how it all boils down, as reported by the L.A. Times: Two fulfillment centers will open in San Bernardino and Patterson, sending sales taxes to those cities. Because the cities will be so darn pleased at all the jobs created in their communities, they’ll reward Amazon with the money gleaned from the sales taxes. Which yes, means Amazon loses nothing and still is doing right by the law.

Because sales to Amazon customers throughout the state will go through those two fulfillment centers, sales taxes earmarked for local government operations will be sent to the cities. It’s going to be a nice chunk of change, at about $8 million a year initially. That’s a very nice way to say thank you to the e-tailer giant for bringing business to the region.

The so-called sales-tax rebate discussion is in its early days, but local officials seems prepared to do whatever it takes to help out their cities.

“This is huge. This is monumental, not only for the city but for the county and the region,” Mayor Luis I. Molina of Patterson said. “We’re up to 20% unemployment, and this is going to make a dent.”

Critics are worried that such a move will set an example for other retailers to ask for similar concessions, even when cities are trying to figure out holes in their budgets. And hey, should Amazon get rewarded for not collecting sales taxes for all those years?

“The tax is supposed to be supporting government,” said Lenny Goldberg, executive director of the California Tax Reform Assn. “Instead, it’s going back into Amazon’s pocket.”

Amazon poised to get a cut of California sales taxes [L.A. Times]

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  1. Gorbachev says:

    Heads, I win. Tails, you lose.

  2. Maltboy wanders aimlessly through the Uncanny Valley says:

    Amazon is revving it’s giant corporate engine in preparation to jump the shark.

  3. kkm772299 says:

    I don’t see what the problem is. It sounds like a win win to me. The local community gets a huge boost, they will collect plenty of new income tax revenue and at the same time Amazon gets to have a fulfillment center closer to their customers. Where it not for the tax break then Amazon would just build their warehouse a bit north in OR where there is no sales tax, how would that better for San Bernadino?

  4. KarlStyles says:

    Worthwhile to note that typically only about 1/10th (0.75% of the sale price) of the sales tax collected is earmarked for local government use, so it isn’t like Amazon is getting all of the ~8% sales tax put directly in their pocket.

  5. keeper1616 says:

    As a California resident, I don’t see how this will help me. I get next day delivery by truck from their Sparks, NV center today. Once they start charging sales tax, I’ll probably just do more shopping locally, and they will lose business.

    • Hi_Hello says:

      shopping at amazon.com is shopping locally since they are in California now.

    • az123 says:

      So are you going to shop locally if the prices are lower at Amazon? I tend to buy not to avoid sales tax but their prices tend to be lower, even if I was paying sales tax

      • CommonSense(ಠ_ಠ) says:

        I can think of 10 other sites with the same items for just as cheap. Most of the time Amazon is more expensive than other sites, but the prime is the difference for the shipping.
        Amazon gets the business because of prime shipping and no sales tax.
        When they charge sales tax they wont be able to compete with other sites.

        I would rather buy from other sites with no sales tax and just wait a little longer for their free shipping.

        • rockelscorcho says:

          agreed! i live in texas and once taxes get imposed, i’m leaving. This is human nature, why am i going to pay more when I don’t have to. Sure, taxes do help people and communities, but people think about themselves. So, these taxes are good for Newegg really.

    • YouDidWhatNow? says:

      No you won’t.

      Amazon is still infinitely more convenient. They still have infinitely more selection. There’s almost no chance they don’t have better customer service. And you don’t have to drive to get there, adding a fuel cost and a time cost.

      …and they’re still cheaper, whether or not sales tax is collected.

      And besides, you *were* paying use tax like you were supposed to on internet purchases anyway, right?

      • CommonSense(ಠ_ಠ) says:

        I will.
        I am in texas. Once the sales tax starts in July I will cancel.
        It might not be much, but it is about principal.
        The internet is interstate and international and even outside of the planet earth in some cases. My state has no right to collect sales taxes when the transaction is out of state on the internet.

        • YouDidWhatNow? says:

          You are correct about that. However, you seem to be ignoring the fact that you’ve always been required, by TX law, to remit use tax for purchases you’ve made on the internet (or by catalog etc.) upon which you paid no sales tax. Which surely, as a good citizen of the great state of Texas, you’ve always done…right?

        • dangermike says:

          I will, too. Californian here. I despise my state’s attempts to subvert the constitution. This whole interstate sales tax (and even the use tax) are just bullet point demonstrations of the ineptitude of this state’s government. It is flat out in violation of the interstate commerce clause.

          Interstate taxation is directly and exclusively assigned to the congress for the very reason being claimed by pro-tax-enactment crowd. The concept is that internet sales, with their lack of taxation, are harming local stores which people are not frequenting, and that they should be tariffed to ‘even the playing field.’ This was allowed in the Articles of Confederation and was one of the major reasons that document was abolished and the US Constitution ratified in its place. If states can tax each other, it is only a matter of time before those taxes become punitive. The protectionist argument in their favor suggests this is the immediate and primary motivation.

          Perhaps if such taxation powers had already existed, the ridiculous Arizona boycotts following the passage of SB1070 would have had teeth… and then what? Forced secession? Another civil war? Or just merely bicoastal carpetbaggers taking advantage of their states’ population bases to force smaller states to conform to their philosophies of governance? Any way you slice it, it is a very anti-American proposition. And without a constitutional amendment, there is no leg for the states to stand on to enforce interstate taxation (neither sales tax nor use tax).

          Amazon’s move to bring DC’s to California means that they will eliminate any standing they may have had to mount a fight against such taxation. They’ve effectively surrendered. For that, I’ll shift my business to other vendors. Most of what I buy is games and computer parts (hello newegg and gamefly), car tools/parts (hey, how ya been, rock auto), musical gear (sweetwater, I’m glad you could make it. You’ll get along well with this crowd), etc. There are plenty of options other than Amazon, and when they start charging tax, they’ll lose the pricing edge they had over other vendors that either do not and will not charge tax or in-state vendors who have kept their prices lower to try to offset the 9-10% they have to collect here. If I held Amazon stock, I’d be pissed right now.

        • Sunflower1970 says:

          I’m in Texas, too. No way am I going to stop using them. 9 times out of 10 I can find an item cheaper there. If I pay tax on it, it will still be lower in price than finding it either in a local retailer or another online shop.

    • gedster314 says:

      I will continue to use Amazon even after the start collecting taxes. 90% of the time my prime shipments are over night and Amazon has never given me a problem returning something. As far as I’m concerned Amazon is light years ahead of any local big box store in my area.

    • Actionable Mango says:

      I live near Amazon HQ so I’ve been charged tax at Amazon since day 1. It’s still a compelling place to shop and I make an order every week or two.

    • Hungry Dog says:

      Amazon is a better place to shop due to lower average prices and the wonderful fact I do not have to deal with idiot salesmen.

  6. Loias supports harsher punishments against corporations says:

    Bravo, Amazon.

  7. az123 says:

    I really don’t see the issue here, Amazon needs to collect for the sate of CA and is doing so, giving them the money that is collected. Through an agreement with other local governments they will get some rebates of the tax money they collect for the state, in exchange those local governments get jobs in their area. Smart business on Amazon’s part.

    The thing I don’t like about these things is that generally I don’t think the local government has enough of a clue about business and what they are doing to enter into these agreements, as a result they tend to loose and not get what they want. However I cannot see blaming Amazon for the fact someone is entering what may be a stupid agreement with them. These local governments need to think and decide for themselves

  8. saffronbandit says:

    It’s not going “back” into Amazon’s pocket. It was never in Amazon’s pocket. Sales tax came out of the consumer’s pocket, and Amazon is gaining at the consumer’s expense.

    • daynight says:

      This is a major point! Why did the article get this wrong?

    • YouDidWhatNow? says:

      Very good point…Amazon is actually realizing a net gain in revenue here.

    • StarKillerX says:

      Actually while Amazon will be gaining it wont technically be at the comsumer’s expense since without this deal the consumer will pay exactly the same, it’s just a question of who ends up with that part of the tax money.

      • YouDidWhatNow? says:

        Well, yes and no. If the customers were already paying their use taxes, like they were supposed to, then to the consumer it’s a wash.

        However…you may have noticed that the bulk of people in this country are under the impression that internet purchases are “tax free” – to wit, you don’t get charged sales tax at the POS from an online vendor who’s not in your state. These people then don’t pay the use tax that they’re required to, so to them this looks and feels like a price increase.

        Even though it isn’t.

        • StarKillerX says:

          But Amazon is going to have to collect the tax even if they don’t open these centers in California, and as such the tax will be collected, it’s just a matter of who gets a piece of it.

        • dangermike says:

          The Constitution specifically and clearly forbids interstate tariffs by the states and reserves as a right solely assigned to Congress all interstate and international taxation. Given that there are no qualms and no attempts to disguise the protectionist nature of the desire for states to charge these taxes, I have no doubt that they would fall if challenged in front of the supreme court. Use taxes are invalid for the same reasons. This is why they are invariably self-reported and unenforced. Attempts to collect them would require violating both Article I and Amendment 4.

          • YouDidWhatNow? says:

            You go ahead and try to argue that use taxes, which exist in every state in the union (and have for a long time) are unconstitutional in a court of law. You go right on and do that. Let us know how it turns out.

    • mehitabel says:

      I’m amazed the article didn’t point that out, nor none of the previous commenters. This is a huge win for Amazon.

  9. Hi_Hello says:

    that’s neat. As for Lenny Goldberg… tax is supposed to support the government, but governments are suppose to support the people, right?

    Amazon by pass the middle man and help people by creating jobs. Ripple affect, guess what people who jobs do?? Spend money…guess where… where they lived…heck, even their earning get taxed which goes back to the government.

  10. crispyduck13 says:

    So the State government is forcing Amazon to collect sales tax from you, the California Amazon consumer while the local government where the Amazon centers are located is giving them an equal sized tax incentive just to be there and employ people. How exactly is that Amazon’s fault? Sounds more like the government in California is working very effectively to fuck over the consumers in that state.

    In the end it’s the consumers of California who are effectively paying for that tax-incentive offered by the local government. That is 16 mil a year total in exchange for 2000 people off unemployment which works out to $8000 per person. I don’t know how that works out compared to the unemployment burden on tax-payers, so not sure if it’s a deal. However, this all boils down to an additional tax people are paying that effectively goes straight to preventing unemployment.

    • KarlStyles says:

      It’s not additional, the consumers should already be paying those taxes. California residents are already required to report sales tax exempt purchases to the state and then pay taxes to California based on the sales tax rate. It is called a use tax. Just because compliance is low doesn’t mean this is all of a sudden an ‘additional’ tax.

    • The Cupcake Nazi says:

      If they are doing what they are supposed to be doing, the consumer is not paying ANY additional tax, you’re wrong about that. They should already be paying these exact same taxes as use tax on internet and out of state purchases.

    • StarKillerX says:

      First read the linked article and not just the consumerist’s biased take which is full of half truths and false implications.

      First the 8 million per city number mention isn’t what Amazon will be getting, and in fact no agreement has been reached yet but some expect Amazon to get the majority of the city’s percentage of the sales tax (which is about 1/10 of the total sales tax.)

      The reasons a city would agree to this is obvious, even without considering the jobs, since even if they give Amazon 75% of their share that still leaves them 25% of an estimated $8 million a year, which is better then 100% of $0 they would get if Amazon selects to put the site elsewhere in the state.

  11. Stickdude says:

    They didn’t collect sales taxes all those years because they were not required to by law (and a notable Supreme Court case) – a minor little detail that seems to have escaped MB’s notice.

  12. gqcarrick says:

    Until loopholes are closed in tax codes, all business will do this.

    • StarKillerX says:

      Actually this has nothing to do with any loopholes in the tax code, this is simply competition between local government for an increased tax base and jobs.

  13. StarKillerX says:

    Yet another article where the Consumerists uses half truths to make things sound more dramatic then they actually are.

    According to the very story linked Amazon may get “lion’s share” of the local take in taxes. The article also states that local government only get about 1/10th of the 7.25% sales tax.

  14. YouDidWhatNow? says:

    ” And hey, should Amazon get rewarded for not collecting sales taxes for all those years?”

    …should they be punished for not doing something they weren’t supposed to be doing for all those years?

    And this isn’t really all that novel – large corporations are frequently given free tax breaks by their local communities.

    • Stickdude says:

      Yes, they should.

      They are a corporation.

      Corporations are evil.

      Therefore, they must be punished.

  15. unpolloloco says:

    Let’s look at the numbers: 8M is going back to Amazon, but 200M is being collected by the state (http://articles.latimes.com/2011/sep/08/business/la-fi-amazon-tax-20110908). I really don’t see a big issue here…

  16. JJFIII says:

    the same people who defend Amazon are the same ones who decried the auto and bank bailouts. This is nothing more than an Amazon bailout to “create” jobs in an area. Of course if the number of jobs do not materialize, Amazon says oh, sorry, we didn’t need that many.
    Ask any city that has ever done business with Pfizer to see what “promises” they make for tax abatements, and how they deliver.

    • MrMagoo is usually sarcastic says:

      Yeah, I’m one who would defend Amazon in this case – why should Amazon NOT do this? Their sole purpose of existence is to make money. If the local government is dumb enough to say, “Hey, locate here, and we’ll give you money”, I don’t see why Amazon should say no.

      Blame the government officials if you don’t like it.

    • OutPastPluto says:

      Let’s see…

      Spending billions proping up failing companies that are too big to fail versus refusing to engage in taxes that are of dubious legality.

      Yeah… those are comparable all right

      That was sarcasm in case you didn’t get it.

  17. CaughtLooking says:

    This type of municipal/private economic scheme has been around for ages and is used in nearly every industry. Cities compete against each other using economic incentives to encourage corporations to relocate, bring jobs, etc. to their communities.

  18. Kate says:

    I don’t think a local city can give away state taxes – the extra amount that the city ups the tax, but it doesn’t have the authority to forgive the state tax.

    • StarKillerX says:

      If you read the linked story, that has the actual facts as opposed to this sites sensationalist half truths, you’ll see that what Amazon may get is a chunk of the cities portion of the sales tax revenue, which is only about 1/10 of the sales tax.

  19. Shorebreak says:

    The cities are reasoning that the people getting jobs will spend more in the local economy than what Patterson and San Bernardino will be giving to Amazon. That kind of strategy may just backfire and leave the two cities regretting their decisions down the road.

  20. SiliconPM says:

    So less tax revenue for idiot California politicians to waste, and it goes directly into providing jobs in communities that need them…

    I am so angry at this!!!

  21. kella says:

    Amazon won’t be paying sales tax, the customers will. Tax breaks in general are bad because they benefit giant corporations who can negotiate them instead of small businesses. However, trading the money for jobs seems like a fair trade. More people working means more income tax and fewer people on welfare, which is better for the budget.

    Amazon will still lose plenty of customers when they start adding sales tax. I won’t be one of them, I find it more convenient to order stuff online than to drive out to a store. Amazon still has a much better system than most other online stores.

    As a San Jose resident, I hope this means faster deliveries as Patterson is only 90 minutes from me.

    • StarKillerX says:

      Actually even if most of the local share goes to a tax break for Amazon it will still mean more money for the local area then if Amazon builds elsewhere. 40, 30, 20 or even 10% of millions is still more then 100% of $0.

    • Zclyh3 says:

      If they have a new shipping center in Patterson, CA, that means ALL prime shipments will now be next day automatically (if you have a prime account). MORE reason not to shop locally with even more convenience.

  22. quail says:

    Ahem. This is nothing new. Wal-Mart, Bass Pro Shops, and many other BIG retailers will have a state & the municipality waive the property taxes when they move in to an area. These millions of dollars saved equate into the local taxpayer funding the company. Right or wrong? Eh, who knows? If the municipality didn’t offer the incentive then the company would look elsewhere because they know cities will bend over backwards to attract the jobs & the status.

    What blows big is when these companies pull up shop just before they’re required to start paying their property taxes, which was the case with a frozen pizza plant (Tombstone?) in the Twin Cities back in the 90s. They got all sorts of incentives to upgrade the plant & keep the jobs. When the agreement was about to expire, they pulled up stakes & shipped the movable equipment to a new location.

  23. alstein says:

    More proof corporations have grown too powerful in relation to the government.

    • tooluser says:

      Quite the opposite actually. When government is too large, too convoluted, and is directly aimed at hurting businesses (as California’s most assuredly is), then businesses respond with large, convoluted schemes aimed at helping their business, just as one would logically deduce from the circumstances. No laws have or will be broken under the proposed arrangement.

  24. Judah says:

    Amazon is doing what it is supposed to do as a business. California, if you don’t like it, change the law.

  25. movalca says:

    Looking at some articles from people that have worked at amazon, amazon doesn’t seem to have a great track record concerningtheir employees. more like sweat shop labor, which says, to me, that it’s more like cheap-labor conservatism.

  26. ThatCatGuy says:

    Maybe those two towns’ leaders should read this:

    http://www.mcall.com/news/local/amazon/mc-allentown-amazon-complaints-20110917,0,6503103.story

    This is, if they haven’t received sufficient brib^h^h^hcampaign contributions.

  27. MarkFL says:

    Just a reminder: Sales tax is supposed to fund things like schools, police and fire departments, road construction, etc. If they’re giving that money to Amazon, who is paying for all of that other stuff? From what I heard on the news last week, nobody is. That’s why California is in such a bad financial mess.

    And every time I hear a company saying it will move somewhere else if it doesn’t get a tax break, I feel like the residents are being blackmailed into forking money over to a private enterprise. Except when the company eliminates the jobs anyway, in which case it’s not blackmail, just outright theft. Hell, even the mafia lived up to its end of the bargain when they took protection money.

  28. Robert Nagel says:

    Is California different from the rest of the states. Isn’t sales tax dependent on where the buyer is, not the distribution center? Doesn’t the tax go directly to the state? How is this supposed to work?

  29. Awesome McAwesomeness says:

    You go Amazon. I’m not much for corporate giants shirking their tax responsibilities, but this seems cool for some reason.

  30. AntiNeutral says:

    LA TIMES: California’s base sales tax rate is 7.25%, higher in some communities. Here is a breakdown of that rate: 6.25% to STATE (General Fund, Fiscal Recovery Fund, Public Safety Fund, Local Revenue Fund) 0.75% LOCAL (City of County Operations) 0.25% LOCAL County Transportation Funds. San Bernardino, CA and Patterson, CA are set to give back to Amazon approximately 80% of THEIR PORTION OF THE LOCAL PORTION, not of the entire tax collected. Even at 0.25%, estimates are about 8 mil per year leaving the CITIES with about $1.6 mil that they never had before…. + the jobs, presumed local biz boost to feed, clothe, house and further tax, ticket and fee the workers. I can see making a deal, but it’s not a good deal. Other posts here are correct; you can’t really blame Amazon for operating within the law. The only possible solution is to pass a Federal law (preferably) that outlaws such sales tax rebates to those who collect it. But also as mentioned herein, politicians are afraid of alienating big biz so it ain’t gonna happen.

  31. zibby says:

    Good for them California would only waste it.

  32. xcergy says:

    Nothing new. S.C. made a similar deal, and it will be 10 years or more before the State will realize any tax revenue. The only boost will be cash flow to local communities from employee spending. Beware of the 800lb. Gorilla (Amazon)

    Note to author: Amazon, nor any other retail store, pays Sales Tax. The collect tax from the buyers, then remit same to CA BOE.