Controversial Amazon SC tax break set to expire in 2016

The clock is ticking on a key incentive that helped bring Amazon to Lexington County.

On Jan. 1, 2016, Amazon must start collecting sales taxes on purchases made in South Carolina unless the General Assembly extends an exemption granted to the Internet giant when it located a distribution center in Lexington in 2011.

Four years ago, the tax exemption sharply divided state leaders.

Then-new Gov. Nikki Haley, a Lexington Republican, opposed the tax break, infuriating Lexington County Republicans and otherswho were anxious to land more than 1,000 new jobs in the wake of the Great Recession.

This time, however, even its supporters say it is time for the tax break to lapse, putting Amazon on a level playing field with traditional brick-and-mortar retailers who collect sales taxes.

If Amazon does begin collecting sales taxes, it will add about $11.1 million a year to the state’s $7.5 billion in general fund revenues, according to the state Revenue and Fiscal Affairs Office.

Of that $11.1 million, $1.9 million would go toward education, which could help lawmakers as they respond to a Supreme Court ruling that says the state must do more for children in poor S.C. schools. The rest would be available to put a small dent in other budget priorities, including the state’s multi-billion-dollar deficit in money needed for road and bridge repairs.

‘Unfair advantage’

The sales tax exemption was sponsored in 2011 by state Rep. Kenny Bingham, R-Lexington, who said recently that Amazon had not contacted him about an extension.

The exemption is in place through 2015 as long as Amazon maintains at least 1,500 Lexington County jobs with health benefits or Congress does not pass a law requiring collection of the tax.

“The tax exemption that Amazon has enjoyed the last five years, quite frankly, was permitted and allowed by Congress because of their ... lack of legislation that would address sales tax across state lines,” said former Lexington Mayor Randy Halfacre, adding that hundreds of millions of dollars in state and federal taxes are not collected nationwide on online purchases.

Concerns about the fairness of the tax break given Amazon helped fuel opposition to the incentive in 2011.

State Rep. Gary Simrill, R-York, was one of 20 lawmakers to oppose the deal. Simrill said the deal gave Amazon an unfair competitive advantage over brick-and-mortar stores that have to collect sales taxes.

“Competition is good,” Simrill said. “But the government should not give one company an unfair advantage that another company is not allowed.”

‘The honor system’

In addition, any sales tax not collected is revenue the state loses, Simrill said.

S.C. residents who make purchases from Amazon still are required to pay the sales tax, even if Amazon does not collect it. Amazon notifies the customers how much they have spent, telling themthey are supposed to pay the amount due on their state income taxes.

But some do not.

“It didn’t remove anyone’s tax liability,” Simrill said. “It just changed it to the honor system.”

Still, the tax exemption “allowed the state to basically acquire a very large global company that has provided thousands of jobs to the Midlands,” said Halfacre, president of the Greater Lexington Chamber of Commerce, who advocated for the Amazon exemption in 2011.

Amazon also received a free site, lower property tax rates on its equipment, state job tax credits and repeal of Lexington County’s longtime ban on Sunday morning sales, a ban that was lifted to facilitate Amazon’s round-the-clock operations.

All but the repeal of the Sunday sales restrictions are standard incentives for major employers.

‘All companies should pay sales tax’

Halfacre said the Amazon distribution center has been a catalyst for economic development in Lexington County.

Bingham said he gets phone calls all the time from people who want to work at the Amazon distribution center.

Still, with the exemption coming to an end after 2015, Halfacre said Amazon should start to collect sales taxes.

“All companies should pay sales tax, just like the brick-and-mortar companies do,” Halfacre said. “But, when laws (do not require) it, I don’t blame them for looking for the exemption.”

This story was originally published December 28, 2014 at 7:22 PM with the headline "Controversial Amazon SC tax break set to expire in 2016."