Amazon Isn’t Afraid of NYC’s High Taxes

(Bloomberg) -- Apparently, some people don’t mind paying high taxes.

Amazon.com Inc.’s highly publicized search for a second headquarters is hurtling toward a conclusion, with the e-commerce giant nearing deals to open new offices in two locales. One is an area of northern Virginia where homes are expensive but taxes are relatively low. The other is Long Island City in the New York borough of Queens, a place that combines scarce housing with some of the highest state and local taxes in the U.S.

The choice of Long Island City, in particular, would serve as a rebuke to conventional wisdom that corporate employers are ditching high-cost cities for places where real estate is cheap and taxes are low or non-existent. New Yorkers in the highest tax brackets can pay as much as 12.7 percent in state and city income taxes. That’s way more than what workers pay in Dallas, another city reportedly in advanced negotiations with Amazon, where the state and local income tax rate is zero.

Amazon Isn’t Afraid of NYC’s High Taxes

“At the metro level, if they’re going to wind up in D.C. and New York instead of Atlanta or Dallas, they’re not going for a low-cost, low-tax, laissez faire environment,” said Jenny Schuetz, a fellow at the Brookings Institution’s Metropolitan Policy Program.

Amazon Isn’t Afraid of NYC’s High Taxes

In recent years, tech behemoths including Google parent Alphabet Inc. and Apple Inc. have opened branches in places like Austin, Denver and Portland, Oregon, where both employers and workers enjoy lower costs than they do in California. And in New York, Wall Street firms such as Goldman Sachs Group Inc. (Salt Lake City), Deutsche Bank AG (Jacksonville, Florida) and AllianceBernstein Holding LP (Nashville) have built up operations outside of their traditional base in a bid to cut costs.

A federal tax-reform bill passed by the Republican-dominated Congress last year was supposed to accelerate the trend because it slashed the deduction for state and local taxes and capped the mortgage-interest write-off, reducing another tax break for residents of more expensive metros.

Amazon Isn’t Afraid of NYC’s High Taxes

Comparing tax rates between metros is a difficult task because cities and states collect revenue through different channels. New York is one of a handful of large cities to collect its own income tax, in addition to state levies. Other states bypass income taxes in favor of higher sales taxes or levies on investment earnings.

Washington, D.C.’s chief financial officer publishes an annual study comparing the tax burdens faced by residents of the biggest city in every state, based on income, property, sales and auto levies. A family of New Yorkers earning $150,000 a year faces a state and local tax burden of 13.4 percent, according to the most recently published report. That made the Big Apple the fifth-costliest city studied, based on 2016 tax rates. Washington ranked 37th with an 8.7 percent tax burden, while Seattle was 47th at 5.7 percent.

Amazon Isn’t Afraid of NYC’s High Taxes

In its original request for proposals, Amazon said it would pay workers at its new offices an average annual compensation of more than $100,000, making them better off than many New Yorkers.

Amazon said it would consider costs of living in its decision-making process. But the company apparently ditched cities including Miami, where residents pay no state income tax, and cheaper housing markets including Columbus, Ohio, and Indianapolis.

Amazon hasn’t signed deals yet, so it’s not known what types of incentives the company has negotiated for itself, but corporate tax perks are a common inducement.

©2018 Bloomberg L.P.