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Amazon's Tale Of Incentives With Two California Cities

--Amazon chose San Bernardino and Patterson, Calif., for shipping centers --Amazon asked whether San Bernardino would be open to discussions on sharing sales tax revenue --Patterson city manager says city is open to sharing a portion of the local sales tax with Amazon --Cities aren't unique in considering sales tax rebates for retailers By John Letzing Of DOW JONES NEWSWIRES SAN FRANCISCO -(Dow Jones)- Amazon.com Inc. is now bringing jobs to a growing number of states. But two California cities are pondering whether they might wind up handing some of the resulting tax windfall right back to the Internet retail giant. The pressures facing San Bernardino and Patterson--which each expect to gain around 1,000 jobs by hosting new Amazon shipping centers--could be shared by other local governments angling to court big companies to help bolster their economies. Amazon (AMZN) representatives asked a number of months ago whether San Bernardino would be open to discussions about sharing sales tax revenue with the company, said Jim Morris, chief of staff for his father, Patrick Morris, the city's mayor. The parties haven't discussed the matter since, he said. "We are evaluating various incentives routinely provided to other retailers, but have made no decisions," said an Amazon spokesman in a prepared statement. But even the possibility that companies in Amazon's position might seek such incentives from cities worries some legislators. "When you have jurisdictions that have their own budget problems, and they're dealing with very large, very sophisticated corporations, it's a huge problem," said California State Sen. Mark DeSaulnier. Mr. DeSaulnier, a Democrat, said he is considering proposing a law that would prevent local governments from giving sales taxes back to companies, unless they can demonstrate why it is in the best interest of the state. Skipping sales tax has helped Amazon undercut many brick-and-mortar retailers. The online giant fought successfully for years to protect its exemption from having to collect sales tax in California and other states where it didn't have a major physical presence. Amazon, which began online operations in 1995, has filed legal challenges over the matter, and even sought a ballot initiative in California to overturn legislation passed last year to force online retailers to collect the tax there. But cash-strapped states such as California have remained steadfast. After California passed the law last year, Amazon eventually abandoned its ballot effort and offered to create tens of thousands of new jobs in the Golden State--in exchange for pushing the requirement to collect sales tax back until later this year. That is roughly the time Amazon is expected to start opening the two new fulfillment centers to ship products purchased on its website. It selected San Bernardino, which is located east of Los Angeles, and Patterson, which is near the San Francisco Bay area. The centers, now under construction, were announced earlier this month. Local governments in California keep about 1% of sales tax, on top of the state's 7.25% rate. They use it for things like staffing police forces and paying firefighters. For Patterson and San Bernardino, those small percentages could nonetheless be significant. Amazon now records about $50 billion in annual sales, and state legislative analysis suggests the company could provide an $83 million annual tax bump for California. California cities aren't unique in considering sales tax rebates for retailers. According to a report last year by non-profit publisher Tax Analysts, local sales tax-sharing deals have become common over the past decade and a half in U.S. cities seeking to lure businesses, though "they generally have been kept buried in the often ignored annals of city council meeting minutes." San Bernardino, for example, has a tax-sharing deal with Kohl's Corp. (KSS) that Mr. Morris says has the city taking a small base amount in the early years of the deal which then grows. But the city's current financial situation could make a similar give-back to Amazon problematic. "We're always willing to talk, but these are tough budget times," he said. The city of more than 200,000 faces a nearly $4 million shortfall. A recent budget report stated that if efforts to reverse San Bernardino's financial condition aren't made, "insolvency or bankruptcy may result." "People don't need less police or fire services or parks when the economy's down," Mr. Morris said, adding, "the 1% [sales tax portion] belongs in the city of San Bernardino." Patterson City Manager Rod Butler echoed those concerns, but said the city of about 20,000 residents is open to the notion of sharing at least a portion of the local sales tax with Amazon. Mr. Butler said Patterson officials have had no direct contact with Amazon on the issue. But the city has started to do some market research, analyzing similar sales tax-sharing deals struck in other cities. Patterson is currently faced with what Mr. Butler termed a "small" budget shortfall of roughly $300,000. Officials of both cities stressed that Amazon told them it chose each location due to factors including low costs and logistical benefits, not tax incentives. And in each city, the matter would have to ultimately be decided by their respective city councils. Mr. DeSaulnier, who voted for legislation compelling online retailers including Amazon to start collecting state sales tax, said he would expect the Seattle-based company to oppose any legislation proposing to curb cities' ability to give some of that tax revenue back in the form of rebates with a significant lobbying effort. "They have very sharp elbows," he said. Bill Dombrowksi, chief executive of the California Retailers Association--which includes Wal-Mart Stores Inc. (WMT) and Kohl's--pushed hard for Amazon to be compelled to collect state sales tax. But Mr. Dombrowksi said his group isn't in a position to take Amazon to task for potentially seeking the same type of local incentives that its constituents get, however: "I don't think we can criticize, because we have members who do it." -By John Letzing, Dow Jones Newswires; john.letzing@dowjones.com

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