Amazon’s bargaining tactics extend beyond New York
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.”
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.
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.