Warehouse growth reflects Amazon’s evolving tax strategy
In California, Amazon received a year’s exemption from tax collection in exchange for building warehouses, where the company will employ as many as 10,000 workers.
Seattle Times business reporter
SAN BERNARDINO, Calif. — For a window into Amazon’s evolving tax strategy, consider the company’s new warehouse in this bankrupt city where the unemployment rate tops 14.5 percent.
Here, Amazon has built one of its newest fulfillment centers, a 1 million-square-foot warehouse that stocks everything from Asus laptop computers to Fisher-Price toys to Nivea skin-care products, as well as books, DVDs and millions more items.
As the site celebrated its grand opening Tuesday, complete with the requisite political dignitaries including California Gov. Jerry Brown, Amazon announced plans to open an even larger warehouse in Moreno Valley, just 20 miles away. It also has opened two other warehouses in Northern California within the last two months.
“The Golden State is very important to us, and we’re thrilled to be a part of it,” Amazon Vice President of North American operations Mike Roth told the assembled crowd. “We are so proud to bring more full-time jobs to the people of this great state.”
Just a few years ago, Amazon was doing all it could to stay away from California. Sure, it wanted to sell items to the country’s most populous state. But building warehouses here would have triggered laws requiring Amazon to collect taxes on sales, something it has tried to avoid since its earliest days, believing it gave the company an advantage over its brick-and-mortar rivals.
Indeed, one reason Amazon founder and Chief Executive Jeff Bezos chose to locate in Washington state rather than Silicon Valley was to avoid creating a so-called “tax nexus” in California.
The calculus changed in 2011, when Brown signed a law that broadened the definition of a nexus to include affiliates, such as websites that link to Amazon products, and subsidiaries, such as Lab126, which designed the Kindle e-readers. Amazon initially tried to fight the measure, cooking up a ballot initiative to challenge the law.
California wasn’t the only cash-strapped state to take on Amazon in a bid to boost revenue. Other states with big populations, including Texas and New Jersey, pressed the company as well. (Washington residents have long paid taxes on their Amazon purchases.)
So Amazon switched tacks. It negotiated with states to delay tax collection in exchange for warehouses and the jobs they bring. In California, Amazon received a year’s exemption from tax collection in exchange for building warehouses, where the company will employ as many as 10,000 workers, including temporary workers hired for the holiday crush.
The facility here, with 1,400 employees, is a massive structure with three levels, where workers pick products from the millions in stock, plunk them in baskets, which are then whisked via conveyor belts to a sorting area. Workers there assemble individual orders for others to box up. Computers select the specific box, based on the size of the particular order.
There, the boxes are taped, and whisked along another conveyor belt, where mailing labels are automatically affixed and machines sort the packages to a collection of trucks waiting to take them to airports or local shippers.
The company is now pushing for a federal law, the Marketplace Fairness Act, which would be applied in every state and on every online retailer with sales above $1 million. That law remains stalled in Congress.
The introduction of the bill “broke the logjam” with states, said Paul Misener, Amazon vice president of global policy and the architect of the company’s tax strategy, who also attended the grand opening here.
The possibility of a federal tax policy has given Amazon the latitude to build warehouses in places where the company had been previously hesitant — places such as San Bernardino.
“It’s the beginning of this partnership,” Misener said.
It’s also the beginning of a new phase of Amazon’s growth. Now willing to collect sales tax, Amazon has been rapidly building warehouses across the country and around the world. As of Sept. 30, Amazon had 96 fulfillment centers worldwide.
Having given up the tax fight, Amazon is moving to counter the one key advantage that brick-and-mortar rivals still hold: immediate gratification. Amazon shoppers still have to wait to get their goods after they’ve made their purchase. But by building scores of warehouses close to densely populated regions, the company is working to reduce the distance its packages have to move, making it easier to deliver products within a day of being sold.
As for giving up the advantage of tax-free shopping, Amazon’s Roth is sanguine. Amazon’s sales continue to climb dramatically.
“We’re very, very happy with the volume that we’re seeing across the U.S.,” Roth said.
In the quarter ended Sept. 30, Amazon’s sales of electronics and other general merchandise grew 33 percent from the year-ago period to $6.7 billion. Tax collection, it seems, hasn’t slowed the company down.
Jay Greene: 206-464-2231 or email@example.com. Twitter: iamjaygreene