Amazon not giving up

The Amazon.com lobbyists must be busy working the phones to our state legislators and emailing them copies of the story in Saturday’s State. “Amazon vote drives off two firms”, screams the headline.

The story goes on to quote Lexington County leaders who have been at the fore front in pushing for Amazon.com to be the only retailer in the state not to have to collect sales tax on in-state sales. Not one dissenting point of view was included as you would expect in a news story. Not one. Amazon couldn’t have paid for better one-sided news coverage.

In my blog on Thursday I said, “Now attention must be paid to the Senate. Amazon.com hasn’t been paying possibly six digit fees to lobbyists just to give up as long as the legislature still has a breath of life this session.” Saturday’s front page story tells me that I was correct.

But let’s make sure we all know what the Amazon proponents actually said in the story. One potential manufacturing prospect for Lexington County is “abandoning consideration”. The other was led to “suspend interest” several weeks ago because of the controversy. Neither of these prospects were in the bag as we thought Amazon was. This might simply have been a convenient excuse for the prospects to say no to Lexington County because it sure wasn’t because the state and county didn’t deliver on everything they promised in writing to Amazon.

And while we were all embroiled in battle here with Amazon, Wall Street didn’t care. The company’s stock rose 7.9 percent to reach an all-time high the same day our House voted down the sweetheart sales tax deal. According to a Seattle Times story, the jump in stock price was because investors approved of the company’s efforts to “grab a bigger share of the e-commerce market.”

And how is Amazon grabbing a bigger share of the market? By bullying states like South Carolina into giving them an unfair competitive advantage over the state’s existing brick-and-more and online stores that have to collect sales tax on in-state sales.

The House vote on Wednesday wasn’t only important for fairness to our existing small businesses, it was also important to the national effort to force all online retailers to collect sales tax regardless of the location of the customer.

Jeff Milchen, co-founder of the American Independent Business Alliance, in his commentary in the April 28th issue of Business Week recognizes South Carolina’s courageous stand against Amazon.com.

(S)state bills closing the Amazon loophole do help level the playing field for many businesses and build momentum for needed national reform such as that proposed by Senators Dick Durbin (D-Ill.) and Mike Enzi (R-Wyo.), who plan to reintroduce the "Main Street Fairness Act" during the current session. Their bill would ratify the Streamlined Sales and Use Tax Agreement, a compact developed by a coalition of state government representatives to harmonize sales tax policies. The bill also would give states the authority to collect tax on interstate sales under these simplified rules.

South Carolina should be proud of taking a leading role in leveling the playing field for all retailers. Let’s not succumb to hyperventilating about possible prospect losses and instead listen to our Commerce secretary, Bobby Hitt.

South Carolina, like our neighboring states, has similar incentives for new and expanding businesses. Incentives are but one of the reasons that companies choose to locate or expand in our state. South Carolina continues to be a national leader in work force development and has one of the most business-friendly climates in the country. A dispute over a sales tax exemption will not change the state’s international and national reputations as a desirable business location.

House stands with state’s small businesses

Congratulations to the South Carolina House!

Yesterday after nearly two hours of hot debate, Representatives voted not to give Amazon.com an exemption from collecting sales tax on in-state purchases. The vote turned out not to be even close.

A clear bi-partisan majority in the House established a new principle for the state’s big business recruitment efforts—do no harm to our existing small businesses.

That was the underlying problem with the Amazon.com sales tax deal. All month we and other business organizations have been saying that exempting Amazon.com from collecting sales tax would give it an unfair competitive advantage over our existing brick-and-mortar and online businesses. (Check out my WIS-TV editorial that ran yesterday afternoon before and during the floor debate.)

The Amazon.com supporters tried to change the subject to one of honoring our promise to Amazon.com to give them the sales tax deal. But no such contractual promise was ever given to Amazon.com.

In response to yesterday’s vote, Amazon.com announced that it was pulling out of building a distribution center in Lexington County. This could be a ploy to scare the legislature into yet giving in. Or it could be a clear indication that Amazon.com is not the corporate citizen we want here. One that either gets its way 100% or takes off for greener pastures.

If it’s the former, the House should not flinch and the Senate shouldn’t tremble because Amazon.com will eventually keep their contractual promise to build. If it’s the latter, our state will survive without Amazon.com and our ability to recruit business will be just fine. We’ll see Amazon.com in court to recover the tangible property already given to the company as part of the contractual incentive.

Comments reported in The State today from a Lexington County official are clearly over the top predicting that “It’s like no one will even look at coming here for 10 years.” You’d think that Sherman burned Columbia and Lexington again yesterday.

However, at the exact same time some legislators were predicting recruitment impotence yesterday if we turn down Amazon.com’s sweetheart sales tax deal, I received the S.C. Department of Commerce’s weekly e-newsletter, Commerce Communications. (I encourage you to sign up for this well designed, clearly written and informative publication.)

In the last 3 issues of this e-newsletter Commerce has announced six new or expanding businesses planning to invest $53.3 million and creating 568 new jobs in the state. Does anyone really believe that this kind of success is going to come to a grinding halt because Amazon.com couldn’t bully the South Carolina House into dropping our collective pants?

Of course not.

Now attention must be paid to the Senate. Amazon.com hasn’t been paying possibly six digit fees to lobbyists just to give up as long as the legislature still has a breath of life this session.

Amazon will build in Lexington Co. without tax deal or we'll see them in court

It’s not often in a political debate that a key argument of one side gets exposed as a complete fraud. This is one of those rare times.

From the beginning of the Amazon.com controversy it was almost universally accepted that giving the company an exemption from collecting sales tax from in-state sales was a bad deal for all our other small retailers that compete with the online giant. And trying to help the economy of one county at the expense of small businesses across the state is simply not fair.

As one state Senator told me, “Frank, you’re probably right about everything but we made a promise that we have to honor.” For the opponents of the Amazon.com deal this has been the hardest objection to overcome even though we always believed that the only promise made was to try to get the tax deal approved by the Legislature. I, and probably most of you, had not seen the tangible evidence of our suspicion until now.

On December 23, 2010, the South Carolina Department of Commerce (DOC) and the South Carolina Coordination Council for Economic Development entered into an Incentive and Inducement Agreement with Amazon.com. Here is article 3.1.3 of that agreement.

3.1.3 Nexus Safe harbor Legislation. Section 12-6-60 of the Code of laws of South Carolina, 1976, as amended (the “SC. Code”), provided that owning or utilizing a distribution facility (as defined therein) within the State would not be considered in determining whether the company has nexus with the State for income tax, corporate license fee or sales tax purposes. However, this provision was repealed for tax years beginning after June 9, 2010. Subject to available resources and to the extent permitted by law, DOC agrees to use its good faith, best efforts to obtain legislation to renew and extend the nexus safe harbor provision.

The State of South Carolina did not “promise” to give Amazon.com the sales tax deal. (Read Cindi Scoppe’s editorial in today’s The State.)

In the competitive world of business recruitment, the contract is everything. If the promise is not on paper and signed, it doesn’t exist. Amazon.com knows that. Commerce knows that. The Senate (which has seen this Agreement) knows that. The House knows that. And most importantly the courts know that.

South Carolina has and will deliver everything we actually promised Amazon.com including the Department of Commerce’s “good faith, best efforts” to secure the sales tax deal. But when the Legislature does the right thing by turning down this request, Amazon.com will still build the distribution center in Lexington County….because that’s what they promised.

Amazon insists on tax breaks that help it compete against other retailers

The editorial below is from the Spartanburg Herald-Journal.

Amazon insists on tax breaks that help

it compete against other retailers

Sunday, April 24, 2011

Imagine you own a small retail business. You've been selling books, cameras, auto parts or some other product for years. You've earned your clientele, paid your taxes and hired local employees.

In the process of building your business, you've helped build your community. But now you face a new competitive challenge. It isn't another store nearby or across town. It isn't even a big-box retailer backed by a huge national company. Your competitor isn't located in your town at all. It's on the Internet.

You find out your customers are buying from this online retailer because its prices are so low. They're low because the Internet business has so little overhead, doing business internationally out of just a few locations. Plus, the online retailer doesn't charge sales tax the way you must. You even learn that some people are coming to your store to check out various products and ask advice and then ordering those products online.

Then, you find out your state government is planning to use the taxes you pay to convince the online retailer to come to your state. The state is giving your competitor many incentives. At least, you think, once your competitor comes to your state, it will have to collect state sales taxes, leveling the playing field. But then you learn your state lawmakers are considering giving your competitor another benefit, letting it sell within the state without sales taxes.

Why, you wonder, is your state using your money to help your competitor drive you out of business?

It's not a hypothetical situation. It's the situation retailers across the state find themselves now that state officials are giving away incentives to lure an Amazon.com distribution center to Lexington County. They are considering exempting Amazon from collecting sales tax on in-state transactions.

Amazon sells just about everything, so it competes with most retailers. It competes with the businesses that make up the Main Streets of South Carolina. Amazon is promising to bring 1,200 jobs to Lexington County, but it competes with the businesses that employ thousands of South Carolinians statewide.

Why should Amazon be exempt from collecting state sales taxes while other retailers in the state are forced to collect the tax? Why should the state give an unfair competitive advantage to this new company at the expense of the other businesses in South Carolina?

There isn't a good reason. Gov. Nikki Haley, who has tried to stay on both sides of this controversy, says she doesn't want the state to break its promise to Amazon. That promise never should have been made. And whoever made it did not have the authority to change state law to make it happen.

This issue wouldn't be a problem if Congress had acted like it should and forced all Internet retailers to collect state sales taxes on all transactions. As it is, only online retailers with a physical presence in a state have to collect sales taxes for that state. There's no reason for South Carolina to compound this inequity by giving Amazon an enhanced competitive advantage once it comes to South Carolina.

If thats what's necessary to lure Amazon to the Palmetto State, it isn't a good enough corporate citizen for us to want it here.

You paid too much in federal taxes

Taxpayers just got screwed again by big, U.S.-based multinational companies. The overseas tax havens they use to avoid paying their fair share in taxes cost the average U.S. taxpayer $434 in 2010 according to a just released report. South Carolina tax payers each paid $204 additional federal taxes so that these multinational companies could pay little or no federal taxes.

I blogged about this issue last week but maybe you didn’t think the issue was that important. It is and we all need to demand that Congress stop offshore tax havens now.

Here is the executive summary of the report.  Read it and get angry.

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U.S. PIRG

April 18, 2011

Tax Shell Game: How Much Did OffShore Tax Havens Cost You In 2010?

EXECUTIVE SUMMARY

Tax havens are countries with minimal or no taxes, to which U.S.-based multinational firms or individuals transfer their earnings to avoid paying taxes in the United States. Users of tax havens benefit from access to America’s markets, workforce, infrastructure and security, but pay little or nothing for it—violating the basic fairness of the tax system.

Abuse of tax havens inflicts a price on other American taxpayers, who must pay higher taxes—now or in the future—to cover the government’s revenue shortfall, or must deal with cuts in government services.

The United States loses approximately $100 billion in tax revenues every year due to corporations and individuals sending their money to offshore tax havens.

• In 2010, making up for this lost revenue cost the average U.S. tax filer $434. That’s enough money to feed a family of four for three weeks.

• The taxpayers who pick up the largest share of the tab live in Delaware and New Jersey. On average, tax filers in those states paid an additional $920 and $752, respectively.

Some of America’s biggest companies—including many who have taken advantage of government bailouts or rely on government contracts—use tax havens. As of 2008, 83 of the 100 largest publicly traded U.S. corporations maintain revenues in offshore tax haven countries.

• Goldman Sachs, which reported more than $2 billion in profit in 2008, was able to use its 29 tax haven subsidiaries to reduce its federal tax bill to just $14 million. That means that Goldman Sachs’ CEO Lloyd Blankfein, who made $42.9 million that year, earned more than three times the amount that the company paid in federal taxes.

• General Electric appears to have paid no federal income taxes in 2010, despite reporting profits in the United States of $5.1 billion. The biggest company in the country, GE has lobbied hard for tax breaks and loopholes in the federal tax code, and shifted many of its profits to tax havens to avoid paying U.S. taxes. GE employs nearly 1,000 people in its tax department to help exploit those loopholes, but has laid off one-fifth of its U.S.-based workers since 2002.

To restore fairness to the tax system by preventing corporations and wealthy individuals from avoiding taxes through the use of tax havens, policymakers should:

• End the ability of U.S. multinational corporations to indefinitely defer paying U.S. tax on their profits. U.S. corporations should pay taxes immediately on profits from U.S. business that companies attribute to their foreign entities, rather than wait until they someday bring the money back to the United States. The United States should not adopt a “territorial” system under which companies temporarily move profits and pay taxes in tax haven countries and then freely bring them back tax-free to the United States.

• Expand rules against money laundering to cover those who aid and abet. The rules should include lawyers who set up shell companies, hedge fund managers who set up anonymous accounts, and others who help taxpayers avoid tax laws.

• Increase the penalties and strengthen rules related to offshore tax shelters, including prohibiting tax strategy patents and fees contingent on obtaining tax benefits.

• Revise tax treaties to enhance sharing of tax information between countries to include the real names of account owners.

• Require multinational corporations to report financial statements on a country-by-country basis.

• Close loopholes that allow tax credits from other countries to count against U.S. tax liability.

• End the ability of U.S. multinational companies to apply tax deductions related to foreign income to U.S. income.

• Eliminate the incentive for U.S. companies to transfer intellectual property (e.g. patents, trademarks) to tax haven countries for artificially low prices and then pay inflated royalties to use them in the United States. This manipulation masks what would otherwise be U.S. taxable income.

• Stop the ability of multinational companies to manipulate how they define their corporate status to minimize their taxes, including the ability to represent themselves as different types of corporations to different countries.

• Treat foreign corporations as U.S. domestic companies if they are managed and controlled in the United States.

• Increase IRS resources to combat transfer pricing and tax haven abuses

Amazon.com wins round 1

The Senate Finance Committee room was packed yesterday by Lexington County supporters of Amazon.com’s request to be exempted from collecting sales tax for sales made to South Carolina residents in exchange for building a new distribution center in that county. The room was also filled with lobbyists hired by Amazon.com to move its legislation forward.

In the end, as expected, the Committee voted 15-5 in favor of by-passing the subcommittee process (that would give the public a chance to voice their opinion) and sending the bill to the Senate floor. In addition to the Senator’s representing Lexington County sponsoring the bill, the Committee’s chairman also added his name and an amendment to give QVC in Florence County another five year corporate income tax pass. It’s hard to vote against the Chairman in this situation so hats off to the five courageous Senators who did.

Below is my letter being delivered to one of those courageous Senators, Danny Verdin. The fight for small businesses goes on.

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April 20, 2011

The Honorable Danny Verdin
South Carolina Senate
404 Gressette Building
Columbia, SC

Re: S.808, Sales Tax Collection Exemption for Amazon.com

Dear Senator Verdin,

Thank you for your insightful questions at yesterday’s Senate Finance Committee regarding the above referenced bill.

You correctly asked what the original motivation was for Amazon.com to demand that it be exempted from collecting sales tax on sales made to South Carolina residents. The answer can clearly be found on page 14 of Amazon’s 2008 Annual Report (see enclosed).

In that report Amazon.com lays out why it must have an exemption from collecting state sales tax.

A successful assertion by one or more states or foreign countries that we should collect sales or other taxes on the sale of merchandise or services could result in substantial tax liabilities for past sales, decrease our ability to compete with traditional retailers, and otherwise harm our business.

We don’t often have such an honest admission from big businesses for the incentives they seek. However, their openness does not change the fact that granting their demand is unfair to all the state’s small businesses, brick-and-mortar and online, that would be competitively disadvantaged.

While we appreciate the issue of trying to uphold an offer made in negotiations with Amazon.com, this is a particularly unique case that, we don’t believe, will shut down the state’s efforts to recruit businesses utilizing more routine incentives.

Sincerely,

Frank Knapp, Jr.
President & CEO

Amazon’s tantrum

Last week legislation was introduced in both the South Carolina House and Senate to exempt Amazon.com from collecting sales tax on sales to South Carolina residents from its proposed distribution center in Lexington County. The bills have an uphill fight.

My earlier blogs lay out the arguments against the Amazon deal:
April 5th--Selling Small Businesses down the Amazon
April 7th--Amazon.com: The bigger picture
April 8th--Amazon.com’s business plan revealed

Business organizations like The S. C. Small Business Chamber, the S.C. Chamber and the newly formed S.C. Alliance for Main Street Fairness are opposing the Amazon.com sales tax exemption for its obvious unfairness to all brick-and-mortar and on-line stores in the state. Tea Party groups across the state have registered their opposition to the deal directly to Governor Nikki Haley in a private meeting encouraging her to veto a bill if it reaches her desk (something she has said that she won’t do). Competing TV and radio commercials are airing statewide encouraging the public to contact legislators to support and oppose the Amazon sales tax deal.

Realizing that South Carolina was not going to be a pushover like all the other state’s it has bullied into getting its way over sales tax, Amazon.com threw a tantrum announcing it had stopped the hiring of 11 management positions for the Lexington County center.

Obviously this is a childish ploy to influence the legislative process. But if it should somehow be successful, Amazon.com will have shown small businesses a new lobbying tactic—stop hiring any new employees until we get what we want from the General Assembly. With over 100,000 small businesses in South Carolina can you imagine how effective this collective “holding our breath” can be?

But back to Amazon’s media effort. Their latest postcard to Lexington County residents (from the company’s new front group—Save Our Lexington Jobs) plays off the Wal-Mart advertising campaign by saying “building the economy in Lexington County has fallen victim to a Wal-Mart ROLLBACK.”

However, the word “rollback” is not what most small businesses across the state are interested in. They want to know if Amazon.com will blackmail our Legislature to ROLLOVER.

NFIB malpractice

Soon we will find out how many small businesses in the country received health insurance tax credits for 2010—a benefit under the Affordable Care Act (ACA). The Small Business Majority estimated that there are approximately 4 million businesses with 2 to 24 employees that could qualify for the tax credits if they offered health insurance last year. And reports from major insurance companies indicated that more small businesses decided to offer health insurance specifically because of the tax credits.

But instead of cheering for the small businesses that will be receiving the federal government’s help in making health insurance more affordable, the National Federation of Independent Business (NFIB) made one last minute effort last week to tell small business what a bad deal the tax credits are.

Well, at least they’re consistent. The NFIB fought very hard against national health care reform. After the ACA became law, the small-business pretender organization signed onto the states’ lawsuit trying to have the ACA declared unconstitutional.

There’s nothing new in the NFIB’s inaccurate complaints about the ACA. But, what the heck, let’s have some fun. Here are some of their bizarre accusations:

1. Relatively few will qualify for the credit. So how many small businesses does the NFIB project qualified for the tax credits? 10,000, 30,000, 100,000? No. The NFIB says up to 2 million. 2 MILLION!!! The NFIB calls 2 million small businesses “relatively few”.

2. Calculating the credit may cost more than the credit itself. Come on! The NFIB is correct that a small business should seek a professional tax preparer to apply for the tax credit. Some information needs to be gathered and proper calculations made. But my accountant told me that he was pleased that the accounting requirements were easier than calculating other business tax credits. Small businesses will be getting possibly tens of thousands of dollars in tax credits to reduce the cost of health insurance. If their tax preparer charges more than that for the service, my advice is to find some different help next year.

3. The credit is unlikely to offset insurance cost increases. The NFIB admits that health insurance premiums for small businesses were escalating before the ACA but claims that the reform will pile on extra costs. Well, according to Vincent Capozzi, senior vice president for Harvard Pilgrim, the ACA has only caused premiums to increase one percent, primarily due to the requirement that preventive services have no out-of-pocket charge. Let’s see. An increase of premiums by one percent but getting a tax credit of up to 35 percent of premiums paid. Obviously the same PR genius at the NFIB who thought 2 million small businesses were “relatively few” also failed math.

But somone at the NFIB finally felt a need to respond to critics like me who have been saying that the organization has been committing malpractice for discouraging small businesses from taking advantage of the tax credtits.  So the NFIB ends its latest trashing of the tax credits with this—in red no less:

[CAVEAT: Despite our concerns with the structure of the credit and the criticisms written above, NFIB urges any small business to consult with an accountant to determine whether filing for the credit is a good idea. If they determine that filing is beneficial, then by all means the business should file and get whatever dollars the law will offer.]

Interpretation: “All the crap we’ve fed you for over a year, never mind.”

Talking tax haven abuse at the U.S. Capitol

About 15 Congressional staff and 15 others attended a briefing yesterday at the U.S. Capitol. They were there to learn more about how tax haven abuse by U.S. based multinational corporations is harming our country. The event was sponsored by the FACT (Financial Accountability and Corporate Transparency) coalition.
 

I was invited to speak to the Congressional staff about the negative impact on small businesses of the big corporations avoiding paying U.S. taxes. More importantly, those attending heard from Nick Shaxson, whose book Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens was released this week in this country. The other more impressive speaker was Rebecca Wilkins, Senior Counsel on Federal Tax Policy at Citizens for Tax Justice, who spoke on remedies to the tax haven problem.

Chuck Collins (Institute for Policy Studies), Nick Shaxson
(author of "Treasure Islands", Rebecca Wilkins (Citizens for
     Tax Justice) and Frank Knapp at the front steps of the U.S. Capitol

For everyone else who wasn’t able to be at the briefing, below were my prepared remarks.

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You might be wondering why a guy representing small businesses in South Carolina is here in such a prestigious building and with such prestigious company.

South Carolinians have a long tradition of concern with being treated fairly. For those of you who know your Revolutionary War history, tax fairness was the issue. A large percentage of the battles were fought in the Palmetto state and it was in the swamps and fields of South Carolina that the war turned in the favor of the colonies.

One hundred and fifty years ago this week, South Carolinians ignited a Civil War because they didn’t think they were being treated fairly by the federal government.

Eleven years ago I and other founded the South Carolina Small Business Chamber of Commerce and one of the reasons was tax unfairness between big and small businesses.

In the past two weeks, my organization has been fighting another fairness issue. Amazon.com insists that they won’t build a distribution center in our state if it isn’t exempted from collecting sales tax on sales to customers in the state.

We oppose this exemption because it would create an unfair competitive advantage for Amazon over our brick-and-mortar and on-line retailers all across the state.

So here we are at tax season and again the issue is tax fairness.

The use of tax havens by U.S. based multinational corporations is clearly unfair to small businesses in South Carolina and across the country.

Multinationals avoiding paying U.S. taxes means that the small CPA firm of the Chairman Emeritus of our chamber competes with H&R Block that pays an effective tax rate of only 12.5 percent.

Multinational corporations avoiding paying U.S. taxes means that another founding board member who started a community bank has to compete against bank of America that paid no U.S. taxes in 2009 and 2010 as well as against Wells Fargo that paid less than zero U.S. taxes in those years because of a tax rebate.

Multinational corporations avoiding paying U.S. taxes means that one of our current board members, who is developing health care information software must compete against GE that, as we know, paid no U.S. taxes last year.

The small businesses that we want to create and are creating the jobs this economy needs should not be competitively disadvantaged to multinational corporations by our own tax law that are clearly unfair.

Beyond the competitive unfairness, small business should not be paying more in taxes for all the services we need from the federal government because multinational corporations are avoiding paying U.S. taxes.

Small business owners might not enjoy paying taxes, but they are very patriotic and are big supporters of fair competition.

Offshoring profits to tax havens is neither patriotic nor competitively fair. More and more small businesses are coming to realize this situation and are raising their voices to call for change.

Tax day comes for us but not for them

When you’re mailing in your tax returns on Monday, they’ll be plenty of big multinational corporations laughing at you.

--Boeing Corporation from 2008 to 2010 had total pre-tax profits of $9.7 billion but did not pay a dime of its profits in federal taxes.

--Between 2006 and 2010, General Electric told their shareholders they had $26.3 billion in profits, but paid no U.S. taxes.

--Citigroup has paid no taxes for the last four years.

This Thursday I will be in Washington to speak to a Congressional staff briefing on tax haven abuse that enables corporations like Boeing, General Electric and Citigroup to dramatically lesson or even eliminate their corporate tax liability by primarily off-shoring profits. As a result, the rest of us pay more for the services of our federal government. Plus, these multinational corporation freeloaders have an unfair competitive advantage over American businesses that pay their taxes.

Below is some information from Business & Investors Against Tax Haven Abuse.

KEY POINTS:

Corporate Tax Dodgers Create an Unlevel Playing Field with Domestic U.S. Businesses. Responsible businesses have to compete unfairly against multinational companies that use offshore tax havens. A domestic U.S. business that pays its taxes is at an unfair disadvantage when multi-corporations game the system and shift profits to low or no tax havens.

Corporate Tax Dodging Shifts Money onto Responsible Tax Payers. The bills have to be paid –and no one should be able to opt out simply because they are politically connected and big. It undermines our system of government when some corporations pay little or nothing toward the range of public goods that includes aircraft carriers, shelters for the homeless, and schools for our kids.


We all must pay our fair share to maintain the public infrastructure for healthy business activity. Businesses thrive in healthy communities with adequate public services and infrastructure. All companies should pay their fair share of taxes for infrastructure, public services and the investments that have historically expanded opportunity in the US including K-12 and higher education.

Our businesses and communities will be hurt by tax cut austerity at local, state and federal level. States are facing the worst budget gaps in living memory. The Center on Budget and Policy Priorities estimates that the combined budget gaps in all U.S. states is over $102 billion. Closing overseas tax havens would generate an estimated $100 billion that could be used to reduce the worst of these cuts.

In the last 50 years, the gap between what corporations pay and the taxes paid by small business and individuals continues to widen. In 1961, small business owners and individuals paid twice as much in federal income taxes as large corporations. In 2011, small business owners and individuals are paying nearly five times in taxes what corporations pay. Between 1961 and 2011, taxes paid by small business owners and individuals rose 23-fold from $41 billion in 1961 to an expected $956 million in 2011. Over the same time period, large corporations saw their tax bill rise less than 10-fold, from $21 billion in 1961 to $198 billion expected in 2011.

Secrecy Undermines Healthy Business Environments. Tax havens are not only ways to reduce or eliminate taxes, but also a means for criminals and lawless corporations to circumvent the law, using secrecy as their primary tool. This is why the Tax Justice Network prefers to refer to tax havens as “secrecy jurisdictions.”

POLICY REMEDIES

No Corporate Tax Holiday for Offshore Profits. Multinational technology and drug companies are lobbying Congress to allow them to repatriate $1.2 trillion in profits they have parked offshore. They would like to pay 5.25 percent taxes on these profits, rather than the statutory rates.

Pass the “Stop Tax Haven Abuse” Act. This would address a variety of abuses (about to be reintroduced in the 112th Congress). $100 billion a year.

Ending Deferred Corporate Income Taxes. This would reduce the incentive for corporations to use tax havens and move jobs offshore. According to Citizens for Tax Justice, ending corporate tax deferral would raise at least $50 billion per year.

Country by Country Reporting. Require global corporations to report sales made, profits earned and taxes paid in every jurisdiction where an entity operates.

Automatic Exchange of Tax Data – through international tax cooperation among governments. Require governments to collect data from financial institutions on income, gains, and property paid to non-resident individuals, corporations and trusts. Mandate that data collected automatically be provided to the governments where nonresident entity is located.

Require Disclosure of Beneficial Ownership of all business entities, trusts, foundations and charities. Require this information be readily available on public record to facilitate effective due diligence; and explicitly require, and enforce, that financial institutions identify the ultimate beneficial owners or controllers of any company, trust or foundation seeking to open an account.

Amazon.com’s business plan revealed

Amazon.com is scared. Scared that if it is forced to follow the laws that apply to every other small business retailer, it can’t compete. Not only here in South Carolina, but across the country.

So the business plan of the company is to force states to make exceptions to tax laws. Amazon does this by waiving promises of lots of jobs and major investment to suck in public and private economic development folks with visions of professional achievement and personal financial gain. And if there is resistance, Amazon.com and their supporters start bullying officials and opponents with their deep-pocketed attacks and misinformation campaigns.

As I (here and here) and others have been saying, the sales tax exemption for Amazon.com is an unfair competitive advantage, which will harm the small business retailers across the state that have to collect the state sales tax.

Yesterday, I spoke with the co-founder of American Independent Business Alliance, Jeff Milchen, about Amazon. He has extensive knowledge of the company's operations around the country and pointed me to the 2008 Annual Report of the company.

In that report on page 14, Amazon.com lays out why it must have an exemption to collecting state sales tax.

A successful assertion by one or more states or foreign countries that we should collect sales or other taxes on the sale of merchandise or services could result in substantial tax liabilities for past sales, decrease our ability to compete with traditional retailers, and otherwise harm our business.

Free market be damned!

Amazon.com’s business plan is based on the company receiving an unfair competitive advantage over other businesses courtesy of the state taxpayers. The company is not run by business geniuses. It’s run by thugs that blackmail states into letting them not obey the laws that all other businesses must obey.

The South Carolina Legislature and its counterparts in every state must start standing up to Amazon.com and tell the company that they won’t throw small business retailers under the bus for a few pieces of gold.

Amazon.com: The bigger picture

Today the Greater Lexington Chamber and Visitors Center will be holding a press conference to show its support for Amazon.com locating in Lexington County. This is certainly good economic news for that county and for the Midlands. The 1250 full-time jobs Amazon.com says it will create are welcomed.

The South Carolina Small Business Chamber of Commerce is supportive of counties and the state responsibly recruiting big business. However, we are in opposition to the proposed sales tax exemption for Amazon.com that would give it an unfair competitive advantage over other South Carolina small businesses.

In addition to the small-business fairness issue, the following points also need to be made:

1. This is not an either/or situation. Amazon.com has never made a public statement that it will not build a distribution center if it does not receive a sales tax exemption. Until that happens we must assume that all the other incentives being provided (but not listed in the press conference announcement) such as $4 million in free land, $3200 state tax credit for every worker hired, reduced property tax, no corporate income tax and probably others are sufficient for Amazon.com to keep its plans to build.

2. If economic development officials have been told by Amazon.com that it will not build if it does not receive a sales tax exemption, then they need to tell the public and explain why they are willing to encourage shoppers to purchase from a big business with deep pockets at the expense of our struggling small businesses.

3. An Amazon.com distribution center is not necessarily going to be a long-time employer in Lexington County. This is not a corporate headquarters setting up community roots. The facility is not a manufacturing plant like Michelin that will have decades of use and a skilled labor force thus tying the corporation to the area for many years to come. While a distribution center is nice, it can be replicated in any state once the immediate benefits (incentives) have been exhausted.

4. The issue of internet sales tax is a federal and state issue. Yes, as noted in the aforementioned press release, Congress can change the law concerning internet sales to require “all retailers to collect sales taxes”. But the states, such as South Carolina, can and have passed laws also pertaining to internet sales. South Carolina does not have to wait until Congress acts to protect its sales tax revenue the best it can. In fact, it has passed a law to do just that, which is why Amazon.com is seeking an exemption.

5. In the paragraph above, the word retailers is used by sales-tax exemption proponents in the reference to actions Congress can take that would impact on Amazon.com’s sales tax responsibilities. This is an affirmation that Amazon.com is a retailer and by definition of South Carolina law it is responsible for collecting sales tax. If Amazon.com believes that it is truly not a retail operation then it should challenge the state in court instead of seeking an exemption, which is an admission of its retail status.

6. If the incentives offered to Amazon.com only came from Lexington County taxpayers, The South Carolina Small Business Chamber of Commerce might not have a position. However, this is not just a local issue. It is one that impacts every small business and taxpayer in the state. While the immediate economic benefits will be to the West Columbia and Cayce communities including some small businesses, the sales tax exemption will be paid for by every small business (brick and mortar and otherwise) in the state that will lose a sale because Amazon.com can charge 6 percent less if it does not have to add a sales tax. It will be paid for by every parent in the state that will have less state funds going to their child’s school because a sales tax is not be collected (and most likely not being reported by the internet purchaser). It will be paid for by South Carolinians from Seneca to Bluffton. This is a statewide issue of significant importance to every small business and citizen.

The South Carolina Small Business Chamber of Commerce encourages Amazon.com to drop its demand for a sales tax exemption, declare victory for all the other incentives it is receiving and deliver on its promise of economic development for Lexington County.

Small business headache avoided

Great news for small businesses! The 1099 tax-reporting requirement in the Affordable Care Act (ACA) is dead. Well, almost. It will be when President Obama signs the U.S. Senate bill that passed yesterday.

The House voted earlier this month to repeal the 1099 provision, which would require businesses to report annual purchases from a vendor that totaled more than $600 to the IRS. It was included in the ACA to raise about $19 billion over 10 years to help pay for healthcare reform. The theory is that this much tax revenue is never collected due to unreported business income.

According to a story in The Hill, the “repeal will be paid for by forcing families whose income unexpectedly exceeds certain levels to repay subsidies they received from the federal government.”

Whether this payment plan works or not, the small business organizations, like the Small Business Chamber, that have strongly advocated for this change are very pleased. This is the first repeal of part of the ACA…and hopefully the last.

Selling Small Businesses down the Amazon

Amazon.com wants you to buy from them and not from our local small businesses. And the company wants to use your tax dollars to make that happen.

That’s what all the controversy is about over the proposed sales tax exemption for a new Amazon distribution center in Lexington County. Should the state create an unlevel playing field between Amazon.com and its competitors to entice the company to create some jobs?

The South Carolina Small Business Chamber doesn’t think so. Below is the letter being delivered to the members of the S.C. House today.

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April 5, 2011

South Carolina House of Representatives
State House
Columbia, SC

Re: Sales Tax Exemption for Amazon

Dear Representative,

The South Carolina Small Business Chamber of Commerce opposes a sales tax exemption for the proposed Amazon distribution center in Lexington County.

Since 2002 our position has been that "the state should not be encouraging the public to make purchases via the internet rather than buying from South Carolina brick and mortar stores. The state should not be creating an uneven playing field when it comes to 'use tax' or sales tax collection."

We concur with the points of others who also oppose the tax exemption. This issue is fundamentally one of fairness to the small businesses that compete with big businesses. Amazon already has competitive advantages in this regard. The state does not need to artificially give them another one that lowers their costs.

If Amazon should cancel their plans to locate here because no tax exemption is given, we might have only accelerated a decision to eventually leave the state as other big businesses have done when incentives end. In such a scenario, the state and county would have been far better off investing the same amount money in promoting the health of existing small businesses that also can create jobs and won’t leave for greener pastures.

Thank you for your consideration in this matter.

Sincerely,
Frank Knapp, Jr.
President & CEO
The South Carolina Small Business Chamber of Commerce

Having an impact in Washington

Every so often someone questions why The South Carolina Small Business Chamber of Commerce should weigh in with Congress on national issues. These skeptics think that we’re wasting our efforts or we have some over-inflated ego thinking that Congress cares what small businesses in little old South Carolina think.

So it’s very helpful when we get reports on how our input to Congress has had an impact. Congressman James Clyburn in a radio interview I did with him kindly gave us credit for helping during the fight over health care reform.

More recently, we sent a letter to members on the U.S. Ways and Means Committee and Subcommittee arguing that H.R. 3 is unfair to small businesses and threatens to erase our hard-won victory for new health insurance tax credits.

Our letter was hand delivered to the Congressional offices prior to debate on H.R. 3 last week.

I received an e-mail last Thursday evening from someone attending the committee meeting. Our letter apparently was a big hit with some members.

The letter was waved around at the hearing today and quoted from by several Members of Congress, most notably Rep. Joe Crowley (D-New York), who read large portions of it, and particularly seemed to appreciate the "slap in the face" line. Wish you could have been there!

Not only is Congress listening, they are requesting our input.

Last week I was invited to attend a meeting with Senator Jeff Merkley (D-Oregon) who I joined last September in a Capital-press conference successfully promoting the passage of the Small Business Jobs Act. Senator Merkley wants to assess “where we are and where we need to go on small business, access to capital, and job creation generally.”

The meeting is this week and I won’t be able to attend. However, I did provide my input to the Senator’s staff.

Fortunately, we have national partners that have a presence in Washington. Our friends at the American Sustainable Business Council, Small Business Majority and Main Street Alliance will attend the meeting.

The bottom line is that our advocacy (and yours) at the national level does have an impact.