Which State Will Get Lower Taxes To Get Amazon And Caterpillar Business?

Amazon.com (NASDAQ: AMZN) is so upset by the prospect that it must collect state sales taxes on items it sells that it will desert its operations in Dallas because Texas sent it a bill for $269 million.  Amazon has threatened to do the same in California. Other states will follow if they are not willing to agree with the e-commerce company’s view that it is not a tax collection agency.

Amazon’s business and that of heavy earth machine equipment maker Caterpillar (NYSE: CAT) could not be more dissimilar. But, Caterpillar has threatened to pull business, and lay-off workers in Illinois if the state does not roll back new taxes. Caterpillar probably won’t move according to people who know company management. That has not kept CEO Doug Oberhelman from writing Governor Pat Quinn that governors from at least four states have tried to woo the heavy machinery company out of Illinois, and “they make compelling arguments,”’according to The Chicago Sun-Times

States are in a bind which most did not face before the recession. Many politicians were elected on platforms of austerity, and, sometimes, higher taxes. It is easy to tell voters that the rich and large companies should bear more of the financial burdens to close state deficits. That is true until the rich and those corporations threaten to leave.

Governors in the states which have invited Amazon, Caterpillar, and other like-minded firms have to do a difficult set of calculations, but they are critical to finding a solution to their deficit problems. Are they better off to make tax deals to get large companies to move to their states and bring jobs with them? Or, do their offers of special tax deals invite existing employers to insist on the same, with the potential of undermining a significant part of the large business tax base.

Some state or states will get more of the Amazon.com business than they already have. Amazon has made that clear. It may turn out that having Amazon as a resident is more expensive than telling it to go elsewhere.

Douglas A. McIntyre