Trump says Amazon has received a free ride from taxpayers in cities across the US — and he might be right

President
The president may target the retail giant because he thinks
Compared with traditional brick-and-mortar retailers, Amazon often pays lower sales taxes and receives other financial incentives from states and cities where it operates.
The undetermined city for its new headquarters, dubbed HQ2, is likely to provide similar economic incentives.

President Donald Trump is "obsessed" with Amazon, a source told the news website Axios on Wednesday, and is considering going after the online retail giant using legal means.

The president thinks that Amazon has contributed to the downfall of brick-and-mortar retailers and that it receives an unfair advantage in the form of tax breaks from local and state governments, according to the Axios reporter Jonathan Swan.

Amazon did not immediately respond to Business Insider's request for comment.

But there's evidence to support Trump's claims about Amazon's tax breaks.

When Amazon opens and operates offices, warehouses, data centers, or Whole Foods locations in cities across the US, it often accepts economic incentives.

From 2005 to 2014, the company received at least $613 million in local government subsidies to build warehouses and another $147 million for its data centers, according to a report by the Institute for Local Self-Reliance, a group that pushes for local resources to be dedicated to community development.

In 16 states, Amazon is exempt from sales taxes, an advantage that an Ohio State University study suggests boosts its sales by nearly 10%. Other cities and states have allowed the online retailer to pay lower tax rates than traditional brick-and-mortar retailers.

In Alabama, for example, Amazon runs five Whole Foods stores and a distribution center that opened late last year. Though the stores and shipping facility have a physical presence, Amazon pays a lower state sales tax than other retailers (8% compared with 10%).

AL.com reports that Amazon collects the 8% tax from shoppers in the state who buy things on its website or at Whole Foods. Most of the tax revenue goes to the state's general fund, and the remainder is distributed to cities and counties based on population.

While the lower tax rate gives Amazon an advantage over brick-and-mortar retailers in Alabama, local governments are not getting as much revenue as they could be receiving. Since 2016, Amazon has participated in Alabama's Simplified Use Tax Remittance Program, which allows eligible online retailers to pay an 8% tax.

Montgomery Mayor Todd Strange told Business Insider that the state this month tried to negotiate with Amazon about paying the higher tax rate. But the company will continue to pay 8%.

"Amazon doesn't have stores, right? No, they have Whole Foods," he said on Wednesday. "We've agreed to take a 2-point haircut to be able to get Amazon, Whole Foods ... and whomever else they buy. We're going from $140 million in tax collection to $80 million just by what happened ... at the Legislature."

It's not unusual for large companies to receive government subsidies. In return, local governments are promised an increase in jobs and economic prosperity. But that doesn't always happen.

A 2018 study by the left-leaning Economic Policy Institute found that the overall employment rates don't change when Amazon opens a new warehouse in a city.

The researchers say warehouse wages also do not change when Amazon comes. Cities and states providing tax incentives to Amazon for warehouse construction may be getting a "bad bargain," one of the study's authors, Ben Zipperer, told Business Insider.

Amazon, which has opened fulfillment centers in 25 states, disputes the group's findings.

"If you look at more current information, you will see that these data points are not demonstrative of our current network, community impact, and both the direct and indirect job creation near fulfillment centers," a company representative said previously, adding that "Amazon's investments led to the creation of 200,000 additional non-Amazon jobs, ranging from construction jobs to healthcare industry positions."

In Seattle, Amazon's hometown, the company has created thousands of jobs and jump-started the city's tech ecosystem. Since 2000, the area has added 99,000 new jobs — 30% of which are in tech — contributing to a construction boom.

But Seattle has also seen rising housing prices and gentrification, and its unemployment rate has not declined significantly.

This year, Amazon is expected to announce the city for its new headquarters, known as HQ2. The company says the campus will bring 50,000 jobs over the next two decades, and most of the 20 finalist cities have said they are offering economic incentives to lure the tech giant — for example, New Jersey has said it wants to award Amazon $7 billion in tax breaks if it chooses the Newark area.

It's not clear what kinds of larger effects Amazon will have on HQ2's metro area. But the company is likely to get a sweet deal wherever it goes next.

Trump says Amazon has received a free ride from taxpayers in cities across the US — and he might be right

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