Why Not Amazon?

There is now a controversy about a deal between the state of South Carolina and online mega-retailer Amazon.  Amazon wants to build a $100 million warehouse/distribution center in Cayce, South Carolina, a suburb of the state capital Columbia, and employ over 1200 people.  In times of economic hardship, such an opportunity would be welcomed, but not by some in the Palmetto State.

The problem stems from an exemption promised Amazon by the Mark Sanford administration that does not require the company to collect South Carolina sales tax on items shipped from the Cayce facility.  Some question this allowance, claiming it’s unfair to local retailers and gives on-line retailers an unfair advantage.

Current Governor Nikki Haley campaigned to protect and promote small businesses in South Carolina.  This has created a dilemma for the chief executive of a state in particularly dire economic straits.  A statement from the governor’s office said:

The state has been put in a terrible spot, forced to choose between not wanting to be known as a state that doesn’t keep our promises, and a governor who strongly believes South Carolina’s first responsibility is to take care of the businesses we already have and not give preferential treatment.

I don’t believe these concerns are applicable here.

The Amazon facility is not a sales office, but a distribution hub.  Think of it this way; if a South Carolinian went to a local store to purchase an item that had to be ordered from a regional distribution center, which state sales tax should the buyer be required to pay?

If it’s in Georgia (4%), the state of South Carolina loses tax revenue on the sale, though the buyer gets a 2% break.  If it’s in California (8.25), again, South Carolina loses, but so does the buyer.  How about buying some nice Italian tile for the bathroom or kitchen, but it has to be ordered from the old country?  What’s the sales tax?

Suppose a South Carolina resident drives to Augusta, Ga and buys clothes or a television … whatever.  For what state should sales tax be paid?  Clothes and televisions can be bought in South Carolina, so is that buyer harming local businesses by purchasing out-of-state?  Yep.  Is there a law against it?  Nope.  Are there customs stations at state lines so one can declare items for the payment of tariffs?  Nah.

Automobile sales taxes are based on the state in which the vehicle is registered, not bought (or from which it may have been sitting on a distribution lot).  If the proponents for sales tax collection for Amazon were to have their way, an automobile shipped into Charleston and sent to a dealer in Delaware (no sales tax) to fulfill an order, then the buyer would have to pay South Carolina sales tax.  Or this… the car is shipped to San Francisco from an overseas manufacturer and a Lexington, SC dealer orders a car that comes from that California facility.  Should the South Carolina buyer pay 8.25% or 6%?

Who would the exemption really hurt?  Every bookseller in the state has to order books from somewhere.  Every electronics seller, home improvement store, sporting goods outlet and big box retailer gets their inventory from some warehouse/distribution center, mostly not in South Carolina.  How do you handle those taxes?

To say that people will buy from Amazon online and not from a local Books-A-Million because of no sales tax is nonsense.  Here’s a hint from a serial Amazon shopper – shipping costs are usually higher than sales tax.

The point is that sales tax should be administered at the point of sale, not distribution.  The issue of sales tax collection for online retailers is a nation-wide debate.  Denying Amazon an incentive (already promised) is not going to solve that issue.

There is also a complaint that the Amazon people have not promised that those 1200+ jobs will go to South Carolinians.  Considering that most of the positions are not likely to be in the upper pay scale, it’s equally unlikely that people will move to central South Carolina to take them.  If they own homes somewhere other than South Carolina, they’ve got to sell them to move to and buy a house in-state.  Not these days they aren’t!

And suppose, for a minute and for argument, they none of the jobs go to current state residents.  So what?  If you’ve got 1,200 jobs coming into the area, you’ve got at least 1,200 taxpayers.  They also buy stuff.  And they’ll buy stuff locally.

The building of an Amazon warehouse/distribution center in South Carolina is a good thing.  If relieving the company of collecting sales taxes on items shipped from (but not sold at) the facility is the only issue, it’s not a valid reason to hold up the benefit to the area and the state.

Remember that the next time you order something.

 

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15 comments

  1. QUOTE: “Are there customs stations at state lines so one can declare items for the payment of tariffs? Nah.” END QUOTE

    But there is the equally ridiculous “use tax” wherein all citizens of the State of South Carolina have to pay the taxes they are supposedly exempted from and are subject to indentured servitude for the total amount of time it takes to take note of and keep up with records of out-of-state purchases through mail-order items or items brought back into the state. In fact, there are some companies–especially furniture stores in North Carolina–that will send an invoice to the State of South Carolina which will then demand the required sales tax.

    I agree that there needs to be a national solution based on Congress’ duty to regulate interstate commerce. It’s not here yet, however and is another problem to be addressed.

    The problems with the fascist, corporate welfare giveaway to the mega corporations (and others) go way beyond a mere sales tax exemption in this or any other case. Economically “desperate times” do not justify fascism nor any other sort of tyranny or inequality under the law. If they do, then our whole system as laid down by the Founding Fathers is a sham and we are incapable of having governments that do the first and sole duty of government: the prevention/punishment of injustice based on the individual and collective right of self defense.

    It’s time to force government representatives to once again take the hard road to work to create an economic environment respective of the fundamental founding principle of equality under the law. Right now, they are picking winners and losers and profiting from their power in doing so. Additionally, until we do so, there will no getting our budget down to a reasonable level and getting the government off our backs to the point we no longer feel like tax slaves.

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  2. I live in Marion SC, where the sales tax rate is 7% (that is 6% state plus a 1% local option tax). South Carolina is a “destination sourced” state, meaning that the point of delivery or the point at which the title of goods is transferred determines the applicable tax rate. Therefore, if I were to order a book through the mail, the shipper would be required to collect and report a 7% sales tax to SCDOR, because I took ownership of the book when the postman placed it in my mailbox. If the shipper was out of state and had no nexus in SC, they are not required to collected the tax. However, that doesn’t mean the tax is not owed on the transaction. In fact it is. I would personally owe a 7% “use” tax on that book and be required to report that on my next state individual income tax return to SCDOR.

    I believe the question on the table relates to whether a $100 mil distribution warehouse constitutes nexus within the state. In theory, excusing Amazon of having nexus, which would otherwise require them to collect sales tax on shipments to customers in SC, doesn’t cost SC anything. The tax on those shipments should be reported as use tax on the SC1040. That’s if everybody in SC were honest tax filers.

    If Amazon builds their warehouse in Georgia, we lose in more ways than one. They certainly won’t be collecting SC tax for us over there, nor will we have 1200 more jobs over here. The economic impact of job is tremendous to both state and community. It generates revenue in income and payroll taxes, lessons the burden on unemployment insurance benefits, increases commerce resulting in additional sales tax revenue, increases property values as folks with jobs buy houses, not to mention less government assistance in food stamps, free/reduced lunch, etc.

    Until all states accept the “streamlined sales tax” agreement and collect out of state sales tax regularly, out of state vendors will have the advantage over in state vendors (if the item is shipped).

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  3. John C:

    My problem with the use tax is that it offers no compensation to individual filers and assumes the right to enslave us to act as THEIR record keepers. An honest government does not require people to work for free in adding additional tax burdens upon themselves.

    Hurting or not hurting the government’s collection of money is irrelevant to me. Treating people unequally under the law should bother everyone, however.

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  4. I am having trouble trying to understand why we would not want the 1200 jobs which will go “somewhere”. The land has already been given to Amazon to build the Warehouse so that is a done deal. Some South Carolina contractors are being used to complete some of this work so it is helping to at least bring some work to struggling businesses in SC. Once the jobs are here these people will spend money, if they are not SC residents, they will buy homes, this will boost the real estate business and the economy. Is it fair to other businesses no!!! And do we need to change that – YES! But should we spite ourselves out of jobs that SC so desperately needs just to prove a point. Amazon is going somewhere – shouldn’t it be South Carolina? Maybe I am missing something – Someone explain it to me in “simple” terms where I can understand why we need to let 1200 to what I hear now up to 2000 jobs go to some other state when SC has over 9% unemployment. I think we need to fight to change the tax laws to make them fair for everyone but not at the cost of loosing jobs. I am still going to go online, probably tomorrow, and order something frrom somewhere that I don’t pay taxes on. And trust me any chance I get to not pay taxes is one I am going to take. I thought that was the point…Taxed Enough Already. Why are we trying to find ways to make people pay more taxes….lets find a way to help the other business not pay taxes!

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  5. Tommy C,
    I don’t see this as treating people unequally under the law. 1) Amazon’s business model is quite different than a Barnes and Noble or a Walmart. Amazon does not have brick and mortar retail locations in the state (or anywhere that I know of). Sales are made through a website running on a server who knows where. SC is not getting any sales tax revenue from Amazon sells right now – so what difference does is make which side of the Savannah River they build their new warehouse? What Amazon is concerned about is locating their warehouse in state could subject them to a huge tax liability. Why on earth would they want to do that?

    Walmart has a huge distribution center near Clinton in the update. Shipments leave there headed to Walmart stores in several states. Those shipments aren’t taxed. I know it’s not the same, but until Internet sales are taxed fairly, it’s a close analogy.

    2) I do not object to government incentives to create jobs as long as there are adequate “claw-back” provisions. Those incentives should apply equally to new and old businesses alike, in-state or out-of-state. And, I think they do. If any industry is willing to make an investment that creates a substantial number of NEW jobs, then why wouldn’t we want to encourage that? The Amazon deal means SC will have 1200 more taxpayers to help shoulder the tax burden. That’s worth something to me. I don’t know what the job situation is like in Lexington, but here in Marion, unemployment is OVER 25%. Those 1200 jobs would literally save our poor county.

    TC, I am a die hard conservative with a mean libertarian streak. I am outraged at government waste, unaccountability, fiscal recklessness, constitutional contempt and general lack of common sense. But, in the case of Amazon, this is money well spent, except that we ain’t really spending it because we never would have collected it otherwise.

    By the way, I always enjoy your posts (you too, Charlie) and thank you both your hard work in our fight to restore liberty.

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  6. John C & Rylyn:

    If you are so concerned about jobs and think politicians should have the power to hand them out, then by gosh, why not go all the way and pass a law guaranteeing every citizen full employment? If proactive job creation is a job for the legislature, then isn’t that the proper way for them to do it? And it worked really well for the U.S.S.R., didn’t it?

    The only people being empowered by this redistribution of wealth are politicians and the corporate elites at the top of the food chain. That’s what we always complain about (or some aspect of the same abuse) but never do anything about.

    Because I believe in the essential goodness of the far greater majority of my fellow human beings (while still recognizing the flaws as well) I would put my faith in an economic environment that trusts them in a free market rather than the government for job creation.

    But even if I couldn’t trust my fellow human beings, I would still prefer we pay for equality under the law at the cost of 1200 jobs, 12,000 jobs, or 12 million jobs! I don’t care how many jobs some politician or mega-corporate tax sucking whore (whether through out and out giveaways or through exemptions) says we’re going to lose if we don’t hand over this or that bribe over to them, we need to stand on principle. Otherwise, we should just get rid of all laws and let the politicians do whatever it takes for them to get re-elected–their ultimate goal, after all–if you examine their words and actions seriously.

    I hate to put it in such blunt terms, but the ends do not justify the means. If killing three people would get us 1200 jobs, would we do that? Of course not. But it’s okay to steal from others in order to bring in 1200 jobs?

    The only way out of this MORAL dilemma is treating people equally under the law. Get government out of the way and guarantee that all businesses are treated equally. If We, the People, are serious about neutering the evil of Glenn McConnell, Jake Knotts, Kenny Bingham and others, this is the sure fire way to do it.

    And if not now, when? When is the time “convenient” enough for everyone to start living by principles? We hardly have people starving in the street at this point. And God knows we’re nowhere near the suffering of Valley Forge. Our ancestors were willing to DIE for their principles. So what’s holding US back?

    And it’s not just whether or not Amazon.com is collecting the sales tax. You can reduce the argument in magnitude but you can’t reduce the argument so that there is no principle involved. Just a spoonful of fascism is NOT good medicine. Preferential treatment of ANY kind–especially at the local level–is just plain wrong. If you can’t see that plain and simple truth, then I’m wasting virtual ink here.

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  7. I’m not asking for the government to guarantee every citizen a job. I’m trying to kill anybody. What I am saying is a that I see nothing wrong with relaxing a 60 year old law in light of modern business models.

    We, as a state, are in direct competition with the other 49 states (and the World) for jobs and investment. In today’s world, the “creative-class” is no longer beholden to any particular geography. They can live where they want and build their factories where they want. I submit to you that it is beneficial to SC taxpayers and citizens (not simply SC legislatures) for industry and investment to locate and strive in our state, rather than in our neighbors’. So how do we compete? How do we attract new capital to SC? Better schools, better infrastructure, low taxes – how? Everybody doesn’t like golf.

    Certainly you can’t fault Amazon for weighing their options. Isn’t it prudent for them to analyze the capital expense, labor pool, infrastructure, and tax/legal implications when making a decision like this? Shouldn’t they calculate their best return on investment as their stockholders expect? What about South Carolina’s stockholders – us taxpayers? I want a good ROI for my tax dollars, too.

    South Carolina should strive to be the most business friendly state in the union. Because businesses and entrepreneurs create wealth, and wealth creates job. The economic impact of a job to the state, community or family is immeasurable. If SC only had 3-4% unemployment, most of our current problems would go away and we could get back to fighting for principals.

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  8. John C:

    We have no common basis for communication.

    Your situational ethics, as admitted to in this statement, are repugnant and incomprehensible to me:
    “If SC only had 3-4% unemployment, most of our current problems would go away and we could get back to fighting for principals.”

    Read this and tell me you’re not promoting the same thing as practiced in fascist Germany:
    http://mises.org/books/vampireeconomy.pdf

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  9. Well, if you characterize my opinion as being fascist or somehow tempting socialism, then I utterly agree with you that we have no common basis. I’ll pray for you.

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    • I’m tracking on both sides of this issue, and quite frankly we are making the simple mistake of accepting the taxation premise. How about we abolish the State Sales and Income tax? While we are at it we can abolish the State Corporate taxes as well. Certainly our legislators, to include the House, Senate, could pass such a bill and the Executive could sign such a notion into law. In my humble opinion, this is where the argument should be had. We could easily adopt a FlatTax or faxcimile for S. Carolina and end the debate.

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      • FairTax at the state level would be a great solution. We’ve got to get people out of the attitude that the proper role of government is to micromanage human behavior by having sleazy, corrupt politicians picking winners and losers in the marketplace and rewarding them with our tax dollars.

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  10. Not to start another controversy, but revenue sourced solely from consumption tax places too high a burden on a single transaction. I say this having 25 years experience in sales and use tax audit work in 14 states. Replacing income tax at for the state and federal level with a VAT or sales tax would require about a 40%+ sales tax. At that rate, you will have a huge black market, bartering and and unmanageable tax gap. Compliance would be a much bigger issue than it is today.

    I agree that the idea sounds good, and I understand the fairness argument of a consumption tax vs. income tax. But in this case, the ideal is just not practical. For a system like that to work, you would have to move to a cashless society with all transactions being electronic which is certainly NOT ideal. Having said that, I’d be in favor of a flat tax on all income over a certain threshold (perhaps in addition to a small national sales tax.) Keep this in mind, in 2009, all 50 states combined only collected $228bil in sales tax. So, doubling the sales tax rate nationwide just nets the federal government the same amount. Not quite the windfall that everyone thinks.

    Labeling our leaders as “sleazy” and “corrupt” that are trying to encourage economic growth in our state by recognizing that existing law fails to adequately address certain business models is a bit extreme. I’d prefer that you reserve those labels for those who are actually sleazy and corrupt.

    If Lowe’s wants to close all of its retail stores in SC and sell only online, then I say they shouldn’t have to collect sales tax either. So this isn’t “picking winners and losers.”

    By the way, sales tax is a “trust tax” meaning that the vendor does not actually pay the tax, they simply collect and remit the tax from the customer on behalf of the government – and, in most cases, without compensation for their effort and record keeping.

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    • The inherent inequality under the law justifies the labels of “sleazy” and “corrupt.” The process is arbitrary and trusting non-angelic beings to that extent is foolish to say the least. They’re taking advantage of us and you seem very happy with the situation.

      Your judgement regarding the fair tax doesn’t take into account some other factors as to the workability of a sales tax. Talk to John Steinberger if you want more details.

      I’m simply saying here that funding the government is not the first and foremost duty of a citizen or we are truly slaves. Morality comes first. We should first do the right thing by the citizens in terms of equality under the law and then work out how best to tax if the sales tax doesn’t happen to work out. Being intransigent and close-minded on the issue of taxes and the misuse of them by legislators is to turn a blind eye to the open corruption right in front of us. Complacence under these circumstances is hardly a virtue, IMHO.

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