Ama­zon’s bar­gain­ing tac­tics ex­tend be­yond New York

The Charlotte Observer (Sunday) - - Business - BY KAREN WEISE, MANNY FER­NAN­DEZ AND JOHN ELIGON

When Texas of­fi­cials pushed Ama­zon to pay nearly $270 mil­lion in back sales taxes in 2010, Ama­zon re­sponded by clos­ing its only ware­house in the state and scrap­ping ex­pan­sion plans there. Two years later, the of­fi­cials agreed to waive the past taxes in ex­change for Ama­zon open­ing new ware­houses.

A sim­i­lar scene played out in South Carolina, where of­fi­cials de­cided in 2011 to deny Ama­zon a sales tax break. After threat­en­ing to stop hir­ing in the state, the com­pany got the tax ex­emp­tion by promis­ing to hire more peo­ple.

And last year in Seat­tle, the com­pany’s home­town, Ama­zon halted plans to build one tower and threat­ened to lease out one un­der con­struc­tion when lo­cal of­fi­cials pushed a tax on large em­ploy­ers. The City Coun­cil passed a smaller ver­sion of the tax, but the com­pany helped fi­nance a suc­cess­ful op­po­si­tion to re­peal it. Now, Ama­zon plans to lease out its space in the tower un­der con­struc­tion any­way.

In New York, Mayor Bill de Bla­sio called it a “shock to the sys­tem” when Ama­zon, fac­ing crit­i­cism for the deal it reached to build a head­quar­ters in the city, abruptly dropped the plans. Gov. An­drew Cuomo is still try­ing to woo them back. But the re­ver­sal mir­rored the com­pany’s in­ter­ac­tions with of­fi­cials in other states.

Vir­tu­ally all of Amer- ica’s largest busi­nesses drive a hard bar­gain with gov­ern­ments, an­gling for ben­e­fits and fi­nan­cial in­cen­tives. Ama­zon, though, of­ten plays pol­i­tics with a dis­tinc­tive mes­sage: Give us what we want, or we'll leave and take our jobs else­where.

The tac­tics help Ama­zon squeeze as much as pos­si­ble out of politi­cians.

“They are just as cut­throat as can be,” said Alex Pearl­stein, vice pres­i­dent at Mar­ket Street Ser­vices, which helps cities, in­clud­ing those with Ama­zon ware­houses, at­tract em­ploy­ers.

New York’s ex­pe­ri­ence with Ama­zon also ex­posed the com­pany’s limited ex­pe­ri­ence with build­ing com­mu­nity re­la­tion­ships. The com­pany did not hire any lo­cal em­ploy­ees or lob­by­ists to con­nect with New York res­i­dents in ad­vance of an­nounc­ing the deal. Un­til re­cent years, al­most no one at the com­pany worked full time in com­mu­nity or gov­ern­ment re­la­tions, though it now has more than 100 lob­by­ists reg­is­tered in state­houses to push its pri­or­i­ties.

That lack of a sig­nif­i­cant on-the-ground strat­egy helped doom the deal in New York, and it is caus­ing headaches else­where.

Ama­zon’s prom­ise to de­liver prac­ti­cally any item within two days means that it needs ware­houses near ma­jor pop­u­la­tion cen­ters, not just where it gets the best deal. In Edi­son, New Jer­sey, noise com­plaints pres­sured the com­pany to spend $3 mil­lion to build a high wall around a ware­house. Out­side of Chicago in Joliet, Illi­nois, Ama­zon pays for an ex­tra po­lice of­fi­cer to help man­age traf­fic – and law­mak­ers want the com­pany to do more.

“Ama­zon doesn’t like any fric­tion,” said Mar­garet O'Mara, a pro­fes­sor at the Univer­sity of Wash­ing­ton who re­searches the his­tory of tech com­pa­nies. But the de­sire for more ur­ban lo­ca­tions, she said, means “it can’t be my way or the high­way.”

The com­pany’s ini­tial pitch is usu­ally sim­ple, say­ing that its of­fices and ware­houses will de­liver qual­ity jobs. And it banks on the pub­lic’s widespread trust in the com­pany’s low prices, wide se­lec­tion and fast de­liv­ery. Many politi­cians and lo­cals are de­lighted when Ama­zon ar­rives and say that the com­pany de­liv­ers the jobs it has pledged.

Over­all, the com­pany has col­lected more than $2.4 bil­lion tax­payer sub­si­dies for its of­fices, ware­houses and data cen­ters, ac­cord­ing to Good Jobs First, a non­profit or­ga­ni­za­tion that tracks cor­po­rate tax breaks.

A com­pany spokes­woman said, “Ama­zon has cre­ated more than 250,000 full-time Amer­i­can jobs and has in­vested hun­dreds of bil­lions of dol­lars into the U.S. econ­omy.” She added, “We are ac­tive par­tic­i­pants work­ing to sup­port the com­mu­ni­ties where we op­er­ate.”

Asked re­cently by a busi­ness pub­li­ca­tion if Ama­zon would change any­thing about the head­quar­ters search in ret­ro­spect, Holly Sul­li­van, the Ama­zon ex­ec­u­tive who led the search, said: “You know, no. I think it was re­ward­ing for us in­ter­nally.”

SALES TAX RE­SIS­TANCE

In 2010, Texas’ top fi­nance of­fi­cial said Ama­zon owed $269 mil­lion be­cause it had failed to pay sales taxes from 2005 to 2009. Ama­zon said it did not need to col­lect the tax be­cause it lacked brick-and-mor­tar stores in the state. It then shut­tered its ware­house at the Dal­las-Fort Worth In­ter­na­tional Air­port that em­ployed about 120 peo­ple and dropped plans to build more out­posts in Texas.

Un­der a set­tle­ment in 2012, the state gave up on the tax charges in ex­change for Ama­zon’s prom­ise to cre­ate 2,500 jobs and spend at least $200 mil­lion on fa­cil­i­ties. Ama­zon also agreed to be­gin col­lect­ing sales tax and pay the state.

Once the deal was reached, Ama­zon ex­panded rapidly across Texas, with mil­lions in sub­si­dies from the state. The com­pany now op­er­ates about 20 sites in Texas.

“In our viewpoint, it’s a lot bet­ter to get them into com­pli­ance vol­un­tar­ily than spend a whole lot of time fight­ing about the past pe­ri­ods,” said Karey Bar­ton, the state’s as­so­ciate deputy comptroller for tax.

For one of the new ware­houses, in San Mar­cos, be­tween Austin and San An­to­nio, Ama­zon re­ceived a $16.6 mil­lion tax re­bate. The ware­house has nearly 3,000 em­ploy­ees, mak­ing it the largest pri­vate em­ployer in town.

“Ev­ery­thing that they told us and promised us on the num­ber of jobs and that kind of thing has sur­passed their time­lines,” said Kristy Stark, com­mu­ni­ca­tions di­rec­tor for the city of San Mar­cos. “We have noth­ing but pos­i­tive things to say.”

NEW HEADACHES

As Ama­zon ex­pands, in­clud­ing closer to more ma­jor cities like New York and Chicago, it is fac­ing more lo­cal de­mands.

“Peo­ple think that Ama­zon is a 100 per­cent sleek ma­chine,” said Beth Gutelius, a re­searcher at the Univer­sity of Illi­nois at Chicago with a fo­cus on ware­houses. In re­al­ity, a lot falls through the cracks. “Even if they are try­ing to be strate­gic lo­cally, they can’t ac­tu­ally do it be­cause they are so big and sprawl­ing.”

In Illi­nois, Ama­zon ini­tially re­sisted open­ing fa­cil­i­ties be­cause that would have re­quired it to start col­lect­ing sales taxes, said John E. Greul­ing, pres­i­dent of the Will County Cen­ter for Eco­nomic De­vel­op­ment. But then, Greul­ing said, “They re­al­ized Illi­nois was too im­por­tant a lo­ca­tion for them.”

Just a few years later, the com­pany has 7,000 peo­ple across five fa­cil­i­ties in Will County, which in­cludes Joliet, mak­ing it the largest em­ployer in an area evolv­ing into a ma­jor lo­gis­tics hub. The first Ama­zon ware­house to open in Joliet re­ceived a state tax in­cen­tive of $71.5 mil­lion for up to 10 years.

About 2 miles south of down­town Joliet, along State Route 53, a rou­tine plays out sev­eral times a day that causes some dread among lo­cals. Ama­zon em­ploy­ees’ cars line up along a nar­row street per­pen­dic­u­lar to the high­way. One after the next, they turn onto the busy fourlane thor­ough­fare, cre­at­ing a long car­a­van dur­ing shift changes.

Lo­cal res­i­dents try­ing to ma­neu­ver their way along this ma­jor artery can get stuck sit­ting at stop signs for 5 or 10 min­utes.

Some lo­cal of­fi­cials say they fear the deals that lured Ama­zon and other ma­jor com­pa­nies to the re­gion did not give the state enough re­sources to fix the in­fra­struc­ture, which is in­creas­ingly stressed as Ama­zon and oth­ers use them.

TAY­LOR GLASCOCK NYT

In ne­go­ti­a­tions with gov­ern­ments, Ama­zon of­ten plays pol­i­tics with a dis­tinc­tive mes­sage: Give us what we want, or we’ll leave and take our jobs else­where.

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