The Amazon Effect: Utah's incentive package is twice as big as Colorado's

By Jennifer Oldham, Special to the Denver Business Journal

October 13, 2017

The state of Utah, frequently a competitor with Colorado for corporate expansions and relocations, spent nearly double the amount in incentives to lure Amazon and a single distribution center compared to what Colorado cities paid for four facilities.

As Amazon.com Inc. breaks ground on a $200 million fulfillment center in Salt Lake City, after being promised $5.68 million in incentives from the state of Utah, merchants are voicing concern that the world’s third-largest retailer is benefiting from tax breaks at the expense of local businesses.

The 855,000-square-foot facility, where more than 1,500 workers will pack and ship books, electronics and toys, will allow Amazon to be quicker and more efficient in Utah, the nation’s fastest-growing state and one of its biggest geographically, said Dave Davis, president of the Utah Retail Merchants Association. More worrisome than its physical entry into the market, he added, is that Amazon isn’t remitting taxes on 40 percent of its sales to the state.

“We need to create a fair playing field where brick-and-mortar firms can compete,” said Davis, who represents Wal-Mart Stores, Target and Home Depot in Utah, as well as homegrown firms such as the King’s English Bookshop and Anthony’s Antiques & Fine Arts. “As long as the government finger is on the scale and tipping it toward Amazon, and other online merchants, there are real concerns out there.”

The Seattle-based tech giant signed an agreement with Utah officials to start remitting state sales taxes as of Jan. 1. Yet this deal, like those forged in other states, doesn’t require the firm to collect levies on sales by third-party vendors.

Critics say the tax loophole is but one instance of preferential treatment Amazon received from the state. The terms of a $5.68 million tax credit deal between the Utah Governor’s Office of Economic Development (GOED) and Amazon to create 130 higher-paying jobs are not publicly available under a nondisclosure agreement signed between the two parties. The rebate allows the company to earn up to 20 percent of new state taxes they would pay over the life of the eight-year agreement.

Taxpayers will also be unable to discern whether the company is providing these positions at the fulfillment center, code named “Huskie,” because the details Amazon is required to submit each December to recoup a portion of the tax credits will be protected under a state law that requires information on tax returns to be kept confidential, said Charlie Roberts, spokesman for the Utah Tax Commission.

Government watchdog groups note that other states require this information to be public, and the Utah rule doesn’t allow the public to discern whether their tax dollars are being used efficiently.

“There is a concern that there isn’t transparency up front with this deal and there isn’t accountability on the back end,” said Derek Monson, executive director at the Sutherland Institute, a conservative think tank. “We don’t know whether businesses that receive these agreements produce jobs or not – all we get to see as the public is a nice press release.”

The Utah Governor’s Office of Economic Development signs a non-disclosure agreement with all the companies it negotiates with that is compliant with the state’s Government Records Access and Management Act, said Aimee Edwards, GOED’s communications director.

“By state statute we aren’t required to disclose anything beyond what’s in the news release,” Edwards said.

Only 130 of the 1,500 jobs Amazon expects to create at the Salt Lake City fulfillment center qualified for a state incentive because total wages of incentivized positions are required to exceed 110 percent of the county average wage.

The 130 managerial positions are expected to pay about $90,000 on average and the remainder in the $30,000 per-year range. The project will generate about $85.5 million in new state wages and $28.4 million in new state tax revenue from corporate and payroll sources, according to a June 8 press release from the office of economic development.

About 2,000 fulfillment center jobs will create an additional 3,000 positions through indirect activity including construction of the facility, hiring by suppliers and household spending with new wages, said Juliette Tennert, director of economic and public policy research at Kem C. Gardner Policy Institute at the University of Utah, whose team completed an analysis of the facility’s economic impact at the GOED’s behest. The complete document is also protected under the terms of the NDA with Amazon.

Tennert added that competition for workers in Utah’s capital city is fierce and will ensure that Amazon pays the prevailing wage.

“We have a 3.5 percent unemployment rate,” Tennert said. “It’s not like they will be able to come in and undercut wages.”

The fulfillment facility will be built in Salt Lake City’s 3,670-acre Northwest Quadrant, just west of its international airport in an underutilized area that Mayor Jackie Biskupski hopes to turn into a regional industrial and manufacturing hub.

The area’s chamber of commerce said the development will further Utah’s aspirations to become a logistics center and validates its nickname as the “Crossroads of the West.”

“Amazon joins the list of other major companies locating their distribution centers here, like UPS, which broke ground on its $275-million-dollar regional operations hub in Salt Lake City earlier this year,” wrote Kimberly Flores, The Salt Lake Chamber’s director of public relations and communications, in an e-mail. “In this case, the state offered $5 million dollars in a post-performance incentive in exchange for $200 million in private capital expenditure. We think that¹s a pretty good deal.”

In announcing the center, Amazon said the facility will benefit small Utah retailers that rely on its rapidly expanding distribution network, as well as Amazon Prime members who pay an annual fee for guaranteed two-day shipping.

“In Utah, there are already more than 30,000 authors, sellers, and developers growing their businesses and reaching new customers on Amazon products and services,” said Akash Chauhan, Amazon's vice president of North American operations in a July 5 statement. “This new facility will enable us to better serve customers and improve Prim