When word emerged that Amazon.com was hunting for new
warehouse sites, leaders in business-friendly South Carolina rolled out a
welcome mat of tax breaks to lure the Internet retailer.
Code-naming their effort "Project ASAP," South Carolina officials offered up more than $33 million in incentives, including free land, a property-tax cut and payroll-tax credits. They even agreed to loosen the area's Bible Belt moral code, repealing a decades-old Lexington County "blue law" so Amazon's warehouse could stay open Sunday mornings.
As they discovered, that wasn't enough.
Amazon also insisted on an exemption from collecting the state's 6 percent sales tax on purchases by South Carolinians. When the state Legislature balked, voting down the sales-tax break last spring, Amazon stopped construction on its million-square-foot warehouse and prepared to leave, throwing thousands of jobs into jeopardy.
The threat worked. After an intense fight that pitted Amazon and local economic-development boosters against small businesses and big retailers like Walmart, lawmakers reversed themselves and handed Amazon a five-year sales-tax reprieve.
The South Carolina episode is one of many confrontations Amazon has faced in its national fight to hang on, for as long as possible, to one of its major advantages over brick-and-mortar retailers.
The world's largest Internet retailer currently collects sales taxes from customers in just five states, including Washington, giving it a price advantage of up to 10 percent in most of the country.
But the days of tax-free Internet shopping appear to be coming to an end, something that Amazon itself has conceded in recent months.
States have lost more than $52 billion during the past six years due to untaxed Internet purchases, according to a University of Tennessee study. Facing massive budget deficits that threaten further cuts to schools and social services, an ever-growing chorus of lawmakers has called for an end to the sales-tax edge long enjoyed by Internet retailers.
The backlash against the tax break -- and Amazon's political tactics -- has cut across party lines in many states, uniting tea-party Republicans and liberal Democrats alike.
"The perception of the company has changed 180 degrees. It is viewed as the bully in these situations," said Michael Mazerov, senior fellow with the Center on Budget and Policy Priorities, a critic of Amazon's sales-tax stance.
In Congress, bipartisan legislation to fix the online tax loophole is gaining momentum -- and Amazon itself has strongly endorsed the proposals, so long as they also apply to its competitors.
"We have always supported a federal solution," said Paul Misener, Amazon's vice president for global public policy.
Not content to wait, at least 23 states already have enacted or proposed legislation to force Internet sales-tax collections.
For years, Amazon has responded to those state moves with bluster, lawsuits, threats to close warehouses and abrupt cuts of ties to thousands of websites in states that forced the tax issue.
"We have vehemently opposed the unconstitutional solutions that the states have taken," said Misener.
But recently, Amazon has backed down in the face of resolute governors
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