Tuesday, May 3, 2011

No winners in Amazon fiasco

Sales tax scuttled

Posted by Greg Hambrick on Tue, May 3, 2011 at 10:25 AM

The botched deal to bring an Amazon distribution center to Lexington had nothing to do with what everyone thought it did: whether or not the company had to charge a sales tax to Palmetto State customers.

Instead, it was a healthy dose of bullying from the biggest of big box stores, Walmart, which was tired of Amazon's tax-free dealings across the country. And it was a well-deserved middle finger from South Carolina small businesses across the state tired of the online business' success.

As former Gov. Mark Sanford was on his way out the door, he secured a healthy little incentive package for Amazon that featured lots of local incentives and a promise that the legislature would quickly approve the sales tax deal.

The first problem for Amazon was timing. A little more than a year ago, we were salivating over the 3,600 jobs that Boeing would bring to its new Dreamliner facility in North Charleston. The state offered special loans to the company and local property tax exemptions. At the time, with the unemployment rate climbing over 10 percent, the state would have likely offered Boeing pretty much anything.

But the Boeing rose started to wilt very quickly. In talking up the move, Boeing executives seemed much more interested in sticking it to unions in the Northwest, hardly finding time to praise South Carolina's ambitious incentive package. By the time of the 2010 GOP primary, the Boeing deal became cannon fodder. Conservatives were pitching it as a boon for Charleston at the expense of Upstate taxpayers.

And while last year's Tax Realignment Commission is a distant memory, what with its recommendations to put new taxes on grandma's medicine and her power bill, the one thing that stuck was a general sense that there are too many businesses getting a pass on sales taxes.

So, you've already got a legislature weary of offering incentives in general — and resistant to sales tax exemptions in particular. Man, that Sanford fella must have a very trusting face, because I could have told you from the start that this was going to fall apart.

Last week, it did just that. The state House rejected the sales tax exemption, 47-71. The votes were a bipartisan mixed bag. House Speaker Bobby Harrell and fellow Republican Mike Sottile both supported the incentive, along with Democrats David Mack and Leon Stavrinakis. Opponents included Democrats Wendell Gilliard and Seth Whipper and Republicans Peter McCoy and Chip Limehouse.

The results came after intense lobbying from Walmart, which already has to charge sales tax for online purchases in South Carolina. And the chain found an unlikely ally in South Carolina small businesses.

Throughout the debate, Gov. Nikki Haley refused to stand against the Amazon deal, but once the House officially abandoned it, she was more than ready to call it bad policy. "We are not so desperate that we are going to hurt our businesses at home," she told The State. "Companies appreciate that. I would love Amazon in this state, but let's do it with a level playing field."

The level playing field is a bit subjective. After all, this wasn't a tax break for Amazon. This was a tax break for Amazon's Palmetto State consumers. Here's how it would have worked: Let's say you're shopping at the local bookstore and you find a few books, but don't want to pay the sales tax. So you go home and buy them online at Amazon to avoid the added charge.

That would happen no matter where the online store's warehouse was located. And it's going to happen now. Only now, there are roughly 1,250 potential customers for that local bookseller who don't have jobs and, therefore, can't afford to buy any books.

Everybody loses — except Tennessee. Amazon is moving forward with a warehouse in that state because the law already protects the online store from having to charge a sales tax.

There will likely be an interesting second chapter to the incentive indignation that came from local Tea Party people. As the price at the pump rises this summer, Washington will be debating whether to maintain existing incentives for oil companies. You'd think those incentives would frustrate fiscal conservatives who bristled at Amazon's deal. If you believe that, I've got a warehouse in Lexington to sell you.

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