June 10, 2011, 12:45 PM

Tax deal fires up Amazon

After an elongated battle in the state legislature, Amazon restarts a project in South Carolina that will create thousands of jobs at a new distribution facility. In Texas, meanwhile, Amazon faces opposition from the governor for a similar deal.

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With a five-year reprieve from having to collect sales tax from customers in South Carolina finally approved by that state, Amazon has restarted plans there to open a new distribution center that it says will create 2,000 full-time jobs.

Amazon, No. 1 in the Internet Retailer Top 500 Guide, says it will begin hiring now for hundreds of newly created full-time jobs and expects to eventually fill 2,000 full-time positions.

"We're pleased to be moving ahead with plans to open a facility in South Carolina this fall, ultimately creating 2,000 full-time jobs in the state," says Dave Clark, Amazon’s vice president of North American operations. "We appreciate South Carolina's decision to welcome Amazon jobs and investment, and we look forward to a long, productive partnership with the state."

The move marks a sharp turnaround for Amazon, which said in April it had aborted its plans to develop distribution facilities in South Carolina after the state’s House of Representatives voted against a tax exemption package under a deal the retailer had made with former Gov. Mark Sanford, a Republican.

After negotiations among members of South Carolina’s House and Senate resulted in amendments to that package—the deal requires Amazon to create 2,000 jobs and invest at least $125 million in its South Carolina distribution facilities by the end of 2013—the full Legislature approved the tax incentive package, including property tax breaks and an exemption from collecting sales tax for five years.

Although Gov. Nikki Haley, the Republican who succeeded Sanford this year, said she personally opposes special tax treatment for Amazon or any other retailers, the tax package went into effect after she declined to sign or veto it.

Amazon is also moving ahead in Tennessee with plans to build out distribution facilities there despite some opposition among some legislators. With support for a tax package from Tennessee Gov. Bill Haslam, Amazon has started hiring for about 1,200 jobs at two fulfillment centers in Tennessee expected to open this fall; the retailer also plans additional distribution facilities there.

In Texas, however, Amazon’s situation is less clear. The retailer said in February that it would close a Dallas distribution center and cancel plans for additional facilities after it failed to come to an agreement with state officials to avoid collecting sales tax in the state. Under federal law, states can require retailers to collect sales tax if they have in-state physical facilities such as stores and distribution centers. Texas state law further says that sales tax responsibility is tied to facilities even when they are operated by a subsidiary of the retailer, as is the case with Amazon.

A bill to strengthen that subsidiary law, and make it more difficult to challenge it in court, was vetoed recently by Texas Gov. Rick Perry, a Republican. Perry says he opposes similar legislative language strengthening the ties between subsidiaries and sales tax responsibility in a separate bill currently before the state legislature, but an effort to delete that language was killed by lawmakers this week. That bill, SB 1, which also covers general state fiscal matters, is expected to be approved by the full legislature and sent to the governor by the end of a special session that ends later this month, according to Nikki Cobb, chief of staff of Rep. John Otto, the author of the bill language pertaining to subsidiaries and sales tax.

George Isaacson, a partner at Brann & Isaacson, and Steve DelBianco, executive director at NetChoice, will speak at the Internet Retailer Conference & Exhibition 2011 about online taxes in a session entitled "How to be prepared when the sales tax officers call."

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