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The Amazon deal: Borders is dead, Amazon wants a tax deal

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Struggling economy got you down?  No problem, you just have to be willing to bargain a little for a job.  Newly minted University of Texas grads have taken this idea to heart. And now so has the “place” where they get most of their textbooks.

Amazon recently came to Austin to play ‘Let’s Make a Deal’ with the Statehouse:  We’ll give you jobs if you give us a tax break.  Specifically Amazon proposed bringing 5000 jobs to the state of Texas, an investment of nearly $300 million, as long as the state grants a sales tax exemption for 4 1/2 years.  The deal is already on Governor Perry's desk as part of a larger sales tax initiative folded into a public school-financing bill.  

The idea is not so far-fetched as it may seem.  South Carolina already accepted a similar deal with Amazon.  Borders has closed its doors leaving some to wonder whether Barnes and Noble will be next.  As traditional brick and mortar stores continue to struggle Amazon’s bargaining strength has gone from bodybuilder to juggernaut.

But Texas is different.  The proposal is part of a larger fight between the state and the country’s largest online retailer over generating revenue.  State Comptroller Susan Combs estimates that Amazon already owes Texas more than $200 million in uncollected sales taxes in the last few years.  Faced with such a hefty price tag Amazon threatened to close a major distribution center in Irving. Governor Perry harshly criticized the move to require Amazon to pay up.

Statewide politics takes on an especially local feel to Austinites.  With many of us continuing to look to online retailers to make our purchases easier and cheaper there are a few things to consider in this proposed deal.

On the positive end Amazon’s proposal will bring jobs to a state beginning to feel the nationwide effects of the economic downturn.  Unemployment remains stubbornly high and putting people back to work is key to economic recovery.  Many of us already use Amazon for all of our book, movie, music purchases anyway so why not get in on some of the action. Selfishly, we also save money on every purchase by not having to pay sales tax.

At the same time there are potential downsides to Amazon’s creative plan.  Online sales are already a legal gray area to local communities.  Since laws regarding sales tax are largely based on whether or not the company has a physical location in the state this might be a move by Amazon to have its cake and eat it too.  Amazon's proposed investment of $300 million over 4 1/2 years would largely serve to offset the money the State Comptroller argues it already owes.  It has the potential to worsen an already eroding tax base by moving more money out of the state.  In exchange for a few thousand jobs Texas could be losing out on crucial reinvestment.

Investment in our own community is certainly important to the "Buy Local" spirit of Austin.  Amazon’s deal may help strengthen the economy and add to the state’s online tech cred, but might do so at considerable cost.  With Austin already at the forefront of online innovation it will be interesting these concerns are likely to hit close to home.  Will Amazon be an online boon or bane?  Perhaps we’ll figure it out at next year’s SXSW Interactive.

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