How Amazon fleeced Ohio
It's easier than it sounds, and it never sounded all that hard.
|Alec MacGillis||Apr 9|
Alec MacGillis is a reporter for ProPublica and author of Fulfillment: Winning and Losing in One-Click America (Macmillan), from which the following is excerpted.
For years, Amazon had steered clear of Ohio, refraining from building any warehouses there to avoid having to assess sales tax on the considerable volume of purchases generated by the seventh most populous state in the union. But by 2015 its customer base in Ohio was so large that it made sense to build warehouses there, in order to fulfill the promise of two-day delivery. Making the move into Ohio even more appealing was the prospect of being offered a significant tax inducement.
It took some audacity for a company to request tax credits from a state after having depleted its treasury with an e-commerce business that was designed to skirt its sales tax, but audacity was not in short supply at Amazon. In 2015 the company made its pitch for its first two warehouses in the state, near the I-270 beltway around Columbus, to the Ohio Development Services Agency and JobsOhio, the private nonprofit created by Gov. John Kasich in 2011 to offer job creation incentives, which, by one tally, was soon handing out $3 billion per year in subsidies. Amazon had the right man to make the pitch: Tony Boetto, who had worked for the state as a “senior tax incentives specialist” a decade earlier.
The real action was at JobsOhio, where several dozen people negotiated tax incentive deals without the inconvenient transparency that came with being an actual government agency. Every month, a board called the Ohio Tax Credit Authority approved the incentives negotiated by JobsOhio. The meetings were theoretically public but functionally secret. Agendas were released on Friday afternoons before the Monday meetings. Visitors had to pass through two security checks to get upstairs. One one occasion, the attendant at the agency’s desk didn’t even know where the meetings were held when asked by a first-time visitor.
The meetings were as scripted and inscrutable as the gatherings of an obscure fraternal organization. The five board members, who were appointed by the governor and legislature, sat at a table in the front of the room. Staff members of JobsOhio and representatives of the companies seeking tax credits sat in chairs facing the board. A collegial buzz filled the room—it seemed as if everyone knew everyone, which most everyone did. When the board chair called the meeting to order, company representatives and JobsOhio staffers took turns offering summaries of each incentive being sought. Each pitch followed the same formula: the promise of x number of jobs to be crated or retained by the business, followed by the threat that the company was also considering states y and z, and needed the tax credits to commit to Ohio. The vote was almost always unanimously in favor—over one four-year stretch, the board had approved more than seven hundred subsidies without a single “no” vote by any one of its members. The meeting were often done within a half hour.
And so it went on July 27, 2015. The company promised to create 2,000 full-time jobs with a payroll of $60 million at the new warehouses. A JobsOhio employee told the board that Ohio was “competing with multiple Midwest states for both fulfillment centers.” If the state wanted Amazon to commit to a jurisdiction it had avoided for years, it would need to offer a 15-year tax credit worth $17 million. That would be in addition to a $1.5 million cash grant from the state liquor-monopoly profits controlled by JobsOhio. The board approved the credit 4-0.
In late 2016, one of the young JobsOhio staffers who had handled the Amazon application, Ryan Wilson, went to work for Amazon, on the exact opposite side of the table: seeking state credits from state agencies like the one he had just left.
The next year, the company trained its sights on the Dayton area. The company picked a site half an hour south of the city, just off Interstate 75 on the way to Cincinnati, a swath of farmland near an outlet mall, casino, and county jail that had been turned into a sprawling logistics park. By 2017, it was home to warehouses for Home Depot, Hayneedle, and Serta, among others. It was exactly what Amazon needed, and where it needed it: between two of the state’s biggest cities, on one of the country’s biggest freight highways. Yet the company would again manage to play the reluctant target rather than the suitor.
This time, Amazon sought incentives from both the state and the local community, Monroe. It insisted on total secrecy, to keep the negotiations from attracting public scrutiny until after the deal was done—local officials referred to the plans only as Project Big Daddy.
Monroe officials were so scared of riling Amazon that they withheld its identity even from the Columbus law firm, Bricker & Eckler, that the town had hired for the negotiations. “Bricker does not know who your client is,” Monroe’s lead official on the project, Jennifer Patterson, assured Amazon’s lawyer in August 2017. “The City is being super careful on this.” A few months later, Patterson told a Bricker attorney that, when a county official had requested information on the project for a meeting, “I purposefully didn’t create a public document with all of the numbers he needs, but the elements are in the email below if he wants to figure out numbers in more detail [smiley face emoji].”
The lack of transparency continued right through the announcement of the deal, when Patterson sent an email to two Amazon executives assuring them that an innocuous quote on the project she’d given a local TV reporter, Jay Warren, had not been from an interview. “We are continuing to not return calls/emails,” she wrote them. “Jay literally just caught me in the parking lot of the City Building and I said no comment, but then he dug up this from today’s meeting. It’s still no comment. Tomorrow I’ll be wearing a public works t-shirt and jeans so no one can find me.”
The agreement called for a ten-year state tax credit worth about $3.8 million to Amazon, in addition to a 100 percent exemption from local property taxes for 15 years. Monroe was not alone in its magnanimity—in 2017 alone, Amazon would collect well over $100 million in subsidies to open fulfillment centers around the country, for a total of more than $1 billion over the previous decade. The company had a whole department tasked with securing subsidies—it called this its office of “economic development.”
In 2018, it emerged that one in ten Amazon employees in Ohio was making so little on the job that they were receiving food stamps. Nationwide, the company was one of the top employers of food-stamp recipients in at least five states.
Yet the deals kept coming. In 2016, the state gave Amazon a $270,000 tax credit to turn a former Chrysler plant in Twinsburg in northeast Ohio into a sorting facility with only ten full-time jobs, though with many more part-time ones during the holiday season. Twinsburg added a seven-year, 50 percent property tax exemption that would cost it $600,000, most of which would have gone toward its schools.
The 2017 announcement of the subsidies for the new warehouse in Monroe was paired with the announcement of even larger subsidies for another fulfillment center, in North Randall, southeast of Cleveland, on the site of a former mall that had closed in 2009. In that instance, Amazon would be getting $7.8 million from the state. In 2019, the state would announce a warehouse at yet another dead mall, in Akron. In addition to the usual state subsidies, the city would grant a 30-year tax rebate, reimbursing Amazon the more than $17 million it paid to buy the land plus other acquisition and demolition costs.
The company’s approach to tax avoidance was a veritable Swiss Army knife, with an implement to wield against every possible government tab. There was the initial decision to settle in Seattle to avoid assessing sales tax in big states such as California. There was the decision to hold off as long as possible on opening warehouses in many large state to avoid the sales taxes there. Amazon employees scattered around the country often carried misleading business cards, so that the company couldn’t be accused of operating in a given state and thus forced to pay taxes there. In 2010, the company went so far as to close its only warehouse in Texas and drop plans for adding additional ones when state officials pushed Amazon to pay nearly $270 million in back sales taxes there, forcing the state to waive the back taxes. By 2017, the company had even created a secret internal goal of securing $1 billion per year in local tax subsidies.
According to the watchdog group Good Jobs First, Amazon has, since 2000, harvested $3.8 billion in subsidies from state and local governments.