Irvine Co. Going All-In with Incentives for Amazon’s 2nd HQ

Irvine Company and the State of California appear ready to go all-in with massive incentives to attract Amazon.com to build a $5-billion second headquarters for 50,000 employees in Orange County.

As the second-richest developer in the United States, Irvine Company sole shareholder Donald Bren usually avoids the public spotlight.  But on September 7 he told the Orange County Register that the Irvine Company can uniquely offer the type of prime corporate location, adjacent airport, city support, room to grow, and supportive government that would “appear to be the perfect location” for Amazon.

Bloomberg suggested that “Toronto, Boston, Washington, Atlanta, Dallas or Denver would be a good fit for a second Amazon North America corporate facility, because these locations can offer a tech savvy talent pool, university systems, international airport, welcoming culture, and likely “eye-popping tax incentives.” But the State of California is already deeply involved in “eye-popping” deals with Amazon.

After the state passed AB-153 to tax internet sales in 2011, Amazon’s CEO Jeff Bezos terminated 25,000 registered Amazon resellers in California. The brutal hardball tactic caused panic in Sacramento and forced California’s Board of Equalization to cut a deal. Amazon.com agreed to re-authorize terminated resellers and collect sales taxes on items that the company sells to California residents. But Amazon won the right to continue to not collect any sales taxes from companies that do not have a physical presence in the state. That includes millions of items listed for sale on its website, stored in its warehouses, and shipped to California residents as “fulfilled by” Amazon. That amounts to about 20 to 25 percent of items the company ships to California customers.

Armed with the what CNET refers to as a the fulfillment “tax loophole,” Amazon negotiated a $1.75 million “California Competes Tax Credit” with the state to leveragd the loophole into opening a fulfillment center in San Bernardino in 2012, where unemployment was at a near-national-high of 12.3 percent. Over the next 5 years, Amazon has added California fulfillment centers in Tracy, Patterson, Moreno Valley, Redlands, Rialto, and another San Bernardino facility in 2016.

Amazon has mastered the “eye-popping incentives” game, according to a “Good Jobs First” study released in December 2016. In the last 15 years, Amazon has racked-up at least $850 million in government-negotiated subsidies for sales tax abatement, property tax abatements, tax increment financing, infrastructure improvements, training grants, and corporate income tax credits. Amazon has also received waivers of sales tax on building materials, machinery, and equipment for its facilities.

Good Jobs First researchers found the pace of Amazon subsidies increased in 2015 and 2016, as two dozen communities across the U.S. communities committed to $241,363,222 to attract new facilities or existing location expansions. The four biggest Amazon fulfillment and sortation center government subsidy deals were $43 million in Baltimore, Maryland; $32 million in Kenosha, Wisconsin; $22 million for locating in Pennsylvania; and $17 million for two facilities in Ohio.

Given that total employment by Amazon’s U.S. fulfillment network is only about 90,000 full-time employees,  earning wage rates of between $17 to $36 an hour, it should be assumed that Amazon would demand record government subsidies to locate a corporate headquarters for 50,000 high-paying jobs for executives and high-skilled staff.

According to Good Jobs First, California has given $2.67 billion in “corporate welfare” subsidies to attract businesses to the state over the past two decades. The biggest beneficiaries were “$889.3 million for aerospace and military contractors, and $389.4 million for entertainment and media.”

The biggest single California deal was $415 million to Lockheed Martin and Northrop Grumman to build the next generation strategic bomber. That works out to a stunning 17.5 percent of all wages paid to workers over a 15-year period.

 


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