Amazon.com Inc.’s threat to move jobs out of Seattle rather than pay more taxes in its hometown adds a new wrinkle to the e-commerce juggernaut’s search for its second headquarters.
The consensus among people involved in luring HQ2 to North Texas — and economists monitoring Amazon’s search — is that the latest squabble in Seattle will highlight tax advantages in Dallas-Fort Worth and Austin at both the state and local level.
But the disagreement probably won’t directly cause Amazon (Nasdaq: AMZN) to move DFW or Austin up or down its list of 20 metro areas under consideration for the $5 billion, 50,000-job project. Both Texas cities remain in contention for HQ2.
Mike Davis, economist and business strategy professor at Southern Methodist University’s Cox School of Business, said the tax environment is a secondary consideration likely outranked by whether Amazon determines that a location has an adequate pool of highly-skilled tech workers.
“It’s not just a question of whoever’s got the lowest taxes wins,” Davis said. “It’s a complex puzzle.”
Davis had harsh words forthe city of Seattle, which has proposed adding a "head tax" on employers that would be based on the number of employees and their salaries. City council members who support the proposal say its goal is to raise funds to expand homelessness services in the city.
“This is political hypocrisy on the part of Seattle and it’s economic illiteracy on the part of Seattle,” said Davis, who specializes in the intersection of government and business.
Amazon told builders on May 2 to stop construction of an office tower in downtown Seattle until after the city council votes on the proposed new tax on the city’s top-grossing businesses. Amazon also said it is considering sub-leasing another large office project to another company, rather than occupying it itself, pending the council’s decision.
The tax would charge businesses with more than $20 million in annual revenue 26 cents per employee for every hour worked. Seattle estimates the tax would generate about $75 million per year for affordable housing and homeless services. If passed, Amazon would be on the hook for roughly $20 million annually.
As the Seattle controversy percolates, some cities are offering Amazon billion-dollar incentive packages as part of their bids for HQ2. Specifics of the incentives being offered in DFW and Austin have not been revealed.
Dale Petroskey, president and CEO of the Dallas Regional Chamber, said Amazon has been open about the criteria it is considering in the HQ2 search, and the tax picture is one of many factors. The chamber is leading the North Texas charge for HQ2.
“Our message to companies considering a relocation is simple,” he said. “We believe it’s hard to beat the DFW region’s combination of scale and regional amenities, low taxes, business friendly environment, tech prowess and an unmatched can-do spirit. All these things are important to a company’s long-term prosperity, and it’s why more than 100 corporations have relocated here since 2010.”
Texas’ lack of a state income tax for either individuals or corporations is undoubtedly attractive to Amazon, said Stephen J. Lusch, assistant professor of accounting at Texas Christian University. Texas does, however, have a relatively complex system that subjects the “taxable margin” of businesses to taxation, and the state also has relatively high property taxes, he added.
However, the bids for HQ2 include property tax abatement incentives, which would allow Amazon to avoid paying property taxes for years, Lusch said.
“The recent activity in Seattle could make Amazon a bit more cognizant of the tax environment of the cities vying for HQ2,” he said.
Lusch said he suspects that factors such as a highly-educated workforce, as well as attractive and affordable housing and transportation options, will weigh more heavily than taxes into Amazon’s final decision.
The absence of a state income tax for individuals is likely a big plus for Texas, Lusch added.
“Given that HQ2 will employ a large number of high-salaried employees, it is certainly attractive to those potential employees to have no state income tax burden,” he said.
Texas’ business tax climate ranked 39th in the country in a study by the Tax Foundation, Lusch said. The foundation noted that repealing the margin tax would raise Texas’ rank to number one.
“There are ways in which Texas could alter its tax laws to become even more appealing to businesses,” Lusch said.
Davis called Seattle’s head tax proposal “a monumental mess on so many levels.”
“Take the claim that this is money for homeless people,” he said. “Well, money is fungible. They can take money from any source and apply it to anything they want. So the idea that somehow you should be happy about this tax because this is a tax for homeless people, that’s just nonsense.”