$40 Million Taxpayer Gift to Amazon.com

March 7, 2011

Investigative Reports

Print Friendly, PDF & Email

The NervePlans by Amazon.com to locate a retail distribution center in Lexington County will cost taxpayers an estimated $39.5 million over 10 years, according to a state financial impact analysis obtained by The Nerve.

The analysis was included with state incentives agreement documents on the project that were provided last week toThe Nerve by the S.C. Department of Commerce under the state Freedom of Information Act.

The nation’s largest Internet retailer of books, music, movies and other items, which had net sales last year of $34 billion, plans to locate a 1-million-square-foot distribution center on about 90 acres in the Saxe Gotha Industrial Park off Interstate 26 near Cayce.

News of the project broke in December, though documents provided to The Nerve indicate that state officials were working on the deal, dubbed “Project ASAP,” at least three months earlier.

The proposed distribution center was the second-largest announced jobs-creation project in the state last year, behind only the Proterra electric bus plant in Greenville County, Commerce records show.

Among other things, the state incentives agreement with Amazon calls on Commerce to try to “obtain legislation to renew and extend the nexus safe harbor provision, ” a state law that expired last June that, according to the incentives agreement, would not have classified qualified distribution facilities such as Amazon as a “nexus,” or a fixed place of business, for “income tax, corporate license fee or sales tax purposes,” and thus, according to some media reports, exempting Amazon from collecting state sales taxes on products shipped outside the state.

Whether Amazon would withdraw from the Lexington County project without the legislation is unclear. The company has fought several other states over sales tax collections, according to media reports.

A clause in the South Carolina incentives agreement states that if any provision in the agreement is “invalid, illegal or unenforceable in any respect and for any reason whatsoever,” the remaining provisions “shall not in any way be affected or impaired thereby.”

Commerce attorney Karen Manning declined to answer questions about that issue and other related matters when contacted last week by The Nerve, saying only in a written response, “While we will continue complying with the FOIA in response to all written requests for public records, we have concluded that we cannot justify spending taxpayer-funded time answering questions posed by your organization because the reporting is not objective and balanced.”

Representatives from Amazon’s corporate public relations office in Seattle did not respond last week to written and phone messages from The Nerve.

Under the state incentives agreement and a separate $2.5 million “set-aside” state grant for the project, the company must invest a minimum of $90 million and create at least 1,249 full-time jobs within a three-year period.

The incentives agreement requires the company to “use a good faith effort” in hiring county and state residents, though it notes that it is “expressly agreed that there will be transfers by the company of out-of-state employees to the facility.”

The set-aside grant would reimburse Lexington County for the cost of developing the approximate 90 acres where the distribution center will be located.

The land was sold for $100 to Texas-based US Real Estate Limited Partnership, which will own the plant building when constructed and lease it to Amazon, according to county documents provided last week toThe Nerve under the Freedom of Information Act.

The Lexington County Council in December repealed the county’s “blue laws,” which banned most retail sales on Sundays before 1:30 p.m., to accommodate Amazon, according to media reports.

The state financial impact analysis obtained by The Nerve lists the total projected investment for the building, machinery and equipment at $100 million – $10 million more than required under the set-aside grant agreement.

The analysis was prepared by the S.C. Coordinating Council for Economic Development, which includes the heads of various state agencies dealing with economic development and is chaired by the Commerce secretary.

The estimated total cost of “Project ASAP” to taxpayers represents nearly 40 percent of the listed investment. Besides the set-aside grant, the taxpayer costs over a 10-year period would include, according to the Coordinating Council’s analysis:

  • Nearly $26 million in corporate income job tax credits and job development credits. Under state law, job tax credits are tied to the number of full-time jobs created and the location of the company; job developments credits, which are refunds of a portion of new employee state income withholding taxes, factor in wage levels.
  • Nearly $7 million in increased state and local education costs. In a related matter, Amazon and US Real Estate Limited Partnership entered into a “fee-in-lieu-of-taxes” agreement with Lexington County that will allow the plant property, machinery and equipment to be assessed for property tax purposes at 6 percent for 20 years, instead of at the typical 10.5 percent rate for industrial property. Under the county agreement, the assessment rate would drop to 4 percent – the owner-occupied homeowner rate – and the benefit period extended to 30 years if $150 million is invested and 125 jobs are created, as allowed by state law.
  • $3.7 million for worker training, labeled in the analysis as “special schools.” In an Oct. 19, 2010, letter from the S.C. Technical College System to Commerce, Ann Marie Stieritz, vice president of economic and workforce competitiveness for the technical college system, said worker training for “Project ASAP” would be provided through the system’s “readySC” program, noting that that agreement would provide the “right number of employees at the right time with the right knowledge, skills and abilities to meet the requirements in the discovery stage of the project.”

Under the incentives agreement, Commerce also would help Amazon with “its attempts to qualify for the sales tax exemptions available to companies locating in this state,” though the agreement didn’t give specifics.

The set-aside agreement has “clawback” provisions, or penalties should Amazon not meet required investment and job-creation thresholds.

The company, for example, would owe a flat $500,000 to the state if it didn’t meet the minimum thresholds within the first three years and also would be required to repay a portion of the $2.5 million grant on a sliding-scale basis during that period and in subsequent years if it didn’t maintain at least 1,000 jobs, based on how closely it came to meeting the thresholds.

But the clawback provisions do not apply to the more expensive corporate income tax and job development tax credits.

Under the land sale agreement, Amazon could be required, though not forced, to repay the county an amount ranging from $250,000 to $2.5 million, depending on how closely it came to creating 1,249 jobs in the first three years, and the same range amounts if didn’t maintain at least 1,000 jobs for five years after that.

Total annual payroll at the distribution center is projected at about $42 million, with an annual average salary of $33,370 and an average hourly wage of $16.69, according to the Coordinating Council’s analysis.

Besides the 1,249 full-time jobs at the plant, the project also is expected to create 1,567 “indirect” jobs, according to the analysis, though it doesn’t provide specifics on how that figure was determined, or what types of jobs would be created and where.

The analysis lists the overall “net” benefit of the project at about $1.1 billion over the 10-year period, for a benefit-cost ratio of 26 to 1. Most of the listed benefits are projected direct and “indirect” payroll estimates; the total also includes about $82 million in projected state revenues and another $12.3 million in estimated project property taxes.

In 2010, Amazon.com had net income of $1.15 billion, which represents more than 20 percent of this fiscal year’s state general fund budget.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org