South Carolina legislators have reached a deal with Amazon.com on a sales tax exemption that puts a $125-million distribution center project back on the front burner. In April, Amazon scrapped plans for the distribution outlet in SC after state legislators refused to honor a sales tax exemption deal reached with the previous government.
On May 30, the state agreed to a new deal with the online retailer that puts the distribution center deal back on the front burner, according to the Nexus Navigator.com website, which tracks tax deals involving state governments. In return for a five-year exemption from being considered to have sales ta nexus in South Carolina, Amazon has promised to build a $125-million distribution center in the state, creating 2,000 jobs.
Originally, the location of the distribution facility was contingent upon the state’s agreement that the facility was operated independently from Amazon’s main retail arm, and thus the company did not have “nexus” in the state for sales, income and/or ‘other’ taxes. The agreement was to last for a 5-year period.
Amazon, like many other large retailers, prefers to have distribution centers across the country, in order to move goods to consumers more efficiently. Historically, nexus hasn’t been an issue because the warehouse centers have been operated as independent businesses, rather than direct subsidiaries of Amazon. In addition, the retailer has no physical storefront in the state. Between these two factors, Amazon has been able to keep the tax-producing activities outside of other states, meaning it has no nexus for sales tax.
However, this position has been challenged in the last couple of years, both by state governments and by in-state retailers, who claim that online retailers have a significant business advantage over local businesses. After losing an argument on the same issue in Texas, Amazon announced that it would close its distribution center. The retailer also made the exemption part of its bargaining position with Tennessee, where it faced the same issue.
Without a unified federal policy on sales tax and Internet shopping, expect these types of battles and agreements to continue.