October 26, 2017
October 26, 2017
The “Amazon Effect” has been used to explain the troubles of brick-and-mortar retailers, supply chain disruptions, and even the death “Main Street USA.” Now, as the company is searching for a site for its second headquarters, critics are focusing on the tax incentives the company is taking advantage of. For example, one newspaper headline reports that Oregon gives Amazon more “tax breaks” than any other state.
The Oregon “tax breaks” are due almost entirely to one proposed investment in one location. Amazon plans to build a five-building data center near Hermiston that, at full build-out, would employ about 100 people and represent an investment of some $2.75 billion. Because of the size of the investment, Amazon qualifies for the state’s Strategic Investment Program, which would exempt most of the facility from property taxes for 15 years—an exemption valued at about $176 million.
Excluding the proposed Hermiston project from the ranking of “tax breaks,” would drop Oregon from first place to 13th, between Kentucky and New Jersey.
In Oregon, business property taxes are assessed on machinery, equipment, and furniture, as well as the dirt the business is sitting on. That means expensive high-tech facilities can face sky high property tax bills simply for having expensive equipment sitting in the building. Because this tax policy discourages high-tech investment, the state implemented the Strategic Investment Program as a way to attract high-tech investments like Amazon’s proposed data center.
Oregon’s Strategic Investment Program offers a 15-year property tax exemption on a portion of large capital investments. The program was created in the 1990s to induce large, capital-intensive facilities to locate and grow in Oregon. Businesses must submit an application to the county in which the facility is to be located. The county holds a public hearing and negotiates an agreement between the business and county and city (if applicable).
For Amazon’s proposed site near Hermiston, Umatilla County held a public hearing in August 2017. At the public hearing, the county chair asked for public comment, but no public comment was offered. That means no one spoke against providing Amazon the tax exemption. That should be no surprise.
The Hermiston site is a data center. That means, there won’t be fleets of trucks coming and going and clogging the roads as might happen with a distribution center. With only 100 employees anticipated at the Hermiston site, impacts on school enrollment and infrastructure will be virtually unnoticeable. And, even with the tax breaks, Amazon will paying millions of dollars in taxes and fees that Umatilla County would not have received if the company had located elsewhere.
In the modern world of cloud computing, companies can put their data centers just about anywhere in the world. Oregon’s Strategic Investment Program recognizes this reality and recognizes that getting millions of tax dollars from investments is better than getting zero from companies that locate elsewhere.
The Strategic Investment Program was designed to soften the impacts from a property tax assessment policy that punishes heavy investment. Without the SIP, high-tech and other capital intensive firms would pass over Oregon and invest elsewhere. Amazon followed the procedure laid out by the law and faced no opposition in a public hearing.
Policymakers who don’t like Amazon’s “tax breaks” under the Strategic Investment Program should revisit how property taxes are assessed and how those assessments affect investment decisions.
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