WSJ Fronts Amazon’s Tax Avoidance Strategy

Color-coded maps tell employees which states are safe, bad, and neutral

It’s nice to see The Wall Street Journal take a page-one look at Amazon’s aggressive tax avoidance, something I’ve written about quite a bit here at The Audit. Its story establishes even more clearly that avoiding sales taxes is a core part of the company’s business and has been from the beginning.

The Journal reports that Amazon went to great lengths to avoid doing business in states in which it didn’t collect sales taxes—even when it was doing business in states in which it didn’t collect sales taxes:

For travel to California, some former employees recall being instructed by lawyers and managers to use special business cards. Rather than distributing typical “” cards, they used ones from “Amazon Digital Services,” a wholly owned subsidiary that sells digital content such as books and music. Representing a subsidiary, rather than core retail operations, would help prevent state authorities from going after Amazon, the people said.

“It’s a very unscrupulous practice,” said Ms. Yee of the California tax board. She said Amazon employees visiting the state on business should present themselves clearly. If they don’t, she added, “I think it’s a conscious attempt to evade California’s tax laws.”

The paper reports that Amazon used a color-coded map of the country to tell employees traveling which states were “safe,” “neutral”, and “bad”—sort of like a corporate version of the State Department’s travel warnings list.

The Journal flat out says Amazon is not telling the truth when it insists that avoiding sales taxes isn’t a key part of its business strategy. No he said-she said here:

A close examination of Amazon’s corporate practices, based on interviews with more than a dozen former employees and people who have done business with the Seattle company, as well as a review of corporate documents, indicates that the company believes its sales-tax policy is critical to its performance…

Amazon says it doesn’t win orders by nixing sales taxes. Spokeswoman Mary Osako said the company focuses on “low prices, vast selection and fast delivery,” adding that Amazon earns more than half its revenue in jurisdictions, including many overseas, where it collects sales tax or the local equivalent.

Nicely done.

This, on the other hand, is not so good:

Amazon advocates a national sales tax for online retailers, which it argues would simplify tax collection. Congress is now considering such a law, but previous attempts over recent years have failed.

“These complicated state-by-state tax rules perfectly illustrate the need for a simplified, federal solution which is the approach Amazon has supported for years,” Ms. Osako said.

First, I’m pretty sure Amazon isn’t pushing too hard for a national sales tax that would hit it. That seems like an obvious smokescreen.

Second, the Journal lets Amazon talk uncountered about how complicated it supposedly is to collect sales taxes in different states. That’s nonsense, particularly coming from a technology company with tons of programmers who could figure it out in about two hours if they were told to. Barnes & Noble, say, got it down. Amazon could too.

As Slate’s Farhad Manjoo, who’s written some good stuff on Amazon and taxes, writes about that:

Amazon is a pioneering tech company—it knows every purchase I’ve made since 1998, and it is capable of predicting with uncanny accuracy what kinds of stuff I want to purchase today. Does it really expect us to believe that it couldn’t manage a database of taxable goods?

The WSJ, in writing about Amazon’s “battles” with the states, also misses in not pointing out the company’s toughest tactic. It leaves or threatens to leave and take its jobs with it when a state tells it to collect tax. A paragraph or two on Amazon’s doings in Texas, for instance, would have captured that and fit neatly with the paper’s business-card anecdote. This is from a 2008 Dallas Morning News story, which isn’t on the Web:

According to Dallas Central Appraisal District records, owned the distribution center at 2700 Regent Blvd. in Irving in 2006 and 2007. The building’s tax value is listed as $14.6 million.

Outside the huge facility, triple flagpoles display Amazon’s own flag next to the Lone Star and U.S. flags.

The state’s tax-collecting agency didn’t know was operating a facility here until this week when The Dallas Morning News called to ask why the online powerhouse wasn’t charging Texas customers sales taxes, said Robin Corrigan, the comptroller’s team leader for sales tax policy…

Over numerous meetings, Ms. Corrigan said, Amazon officials spoke about their compliance in states where they have a distribution center, but they never included Texas in that group. “In conversations with Amazon, they told me they don’t have a distribution center in Texas,” Ms. Corrigan said.

When Texas demanded Amazon pay it back taxes after it discovered the ruse, Amazon bolted Texas, citing, incredibly, the state’s “unfavorable regulatory climate.”

In South Carolina, the $95 billion Internet giant had planned to bring 1,200 warehouse jobs to the state. But when South Carolina’s legislature insisted that it collect taxes on its sales there, Amazon said it was packing up and leaving. The Legislature quickly folded, carving out a four and a half year tax exemption for Amazon.

But the Journal adds some good detail to this ongoing story. Like this:

Other employees received a spreadsheet with two columns: “bad states” and “safe states,” said a person who saw the document within the past year. One copy of the spreadsheet, reviewed by The Wall Street Journal, listed nine “safe states,” including the four states where Amazon declares retail operations. The spreadsheet listed 19 “bad” states, including Arkansas, Connecticut, Illinois and Texas, which have sought to expand taxation of online sales.

Former employees said “red” states and “bad” states were those with strict laws about what employee actions would force a company to collect taxes there, or with aggressive tax offices. The workers were told to not do certain activities, such as soliciting new customers and promoting products, while in those states.

And it does well to include the fact that Jeff Bezos chose the company’s Seattle headquarters based in no small part on tax consequences—even exploring the possibility at one point of locating on a California Indian reservation.

The momentum is clearly moving against Amazon, largely because it continues to eat away at states’ tax bases at a time when they’re axing teachers to pay the bills. Here in Seattle, even the hometown paper is editorializing against Amazon’s bad corporate citizenship. The main question now is how long it will be able to hold out and retain its unfair advantage over its competitors.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,