Online retailer Amazon will build a $50 million distribution facility somewhere in Connecticut and begin collecting sales tax in November under an agreement reached this week with the state, Gov. Dannel P. Malloy announced Monday.
The agreement comes after more than a year of squabbling between the Internet giant and the state of Connecticut after the legislature passed a bill requiring Amazon to charge consumers sales tax. The state has so far been unable to collect revenue from the tax.
At a state Capitol press conference Monday, Malloy said the agreement with Amazon will bring in an estimated $15 million annually, which he already has factored into the budget he will release Wednesday. That’s higher than the $9.4 million the Office of Fiscal Analysis had estimated the bill would generate this year. Malloy said the estimates came from Amazon.
“I’ve always suspected that there was more money involved in these transactions than the estimates we were getting,” he said.
The distribution center, in which Amazon will invest $50 million to build at a yet-to-be-determined location, will employ 300 people, he said. He described them as “good paying jobs with benefits.”
Since taking office, Malloy has aggressively sought programs that incentivize companies moving operations to the state to create jobs. They typically involve a combination of tax breaks and forgivable loans.
Malloy insisted that the Amazon agreement was “no strings attached” for the state. That led to questions whether previous agreements could have been reached without incentives being offered by the state. Malloy said every situation is different.
“There are times when you are in competition with other states and there are times when you’re not,” he said.
While the governor wouldn’t speculate on what business model Amazon was pursuing in agreeing to collect tax and to build a facility in Connecticut, but he said they have reached similar agreements in nearby states like Massachusetts.
Malloy has long been outspoken about Amazon’s advantage over local brick and mortar stores because of its ability to sell products without sales tax. He said that’s why the state passed what’s often called the “Amazon tax.” He said before the law it was up to consumers to self-report purchases made online.
“It was a practice that allowed online retailers to appear like they were giving deeper discounts when in fact what they were doing was ignoring our laws and shifting tax compliance obligations to the consumer,” he said.
The governor has often said that the upcoming state budget will not include new tax increases. And while the agreement will result in taxes going up for people who had been shopping on Amazon sites but not reporting the purchases, Malloy said it did not constitute a tax increase.
He said the state would just be collecting a tax already on the books “and freeing our citizenry of the obligation to do it themselves.”
As he has in the past, Malloy said online sales tax is an issue which needs to be addressed on the federal level.
But the deal is good news for Amazon’s Connecticut affiliate businesses who saw their ties cut from the retail giant after the online sales tax became law.
“They are willing to do business with affiliates in the state of Connecticut again,” Malloy said. “I think that begins almost instantly because we now have a date by which the collection of taxes will be made.”
Tom Caporaso, of Clarus Marketing Group in Middletown, who runs a web site called freeshipping.com which is affiliated with many online retailers, asked lawmakers not to pass the “Amazon tax” due to the impact it would have on businesses like his. When Amazon later severed its ties, he said he was “deeply disappointed” the state didn’t heed his warnings.
He called Monday’s announcement “great news” for his business.
Tim Phelan, president of the Connecticut Retail Merchants Association, said it was also good news for brick and mortar retailers. Back in November when the state had no agreement to collect online sales tax, Phelan defended the law as at least sending a symbolic message of support to local retailers. He said Monday’s agreement was “more than a good first step.”
While the financial impact for local retailers remains to be seen, Phelan said the agreement with Amazon “at least levels the playing field for people who make purchases through Amazon in Connecticut.”
Like Malloy, he said a national law is the only way to completely address the problem.
“Obviously there are more online retailers than just Amazon doing business,” he said.
None of those online retailers have stuck to a deal to remit sales tax to the state and almost all of them ended their affiliate relationships when the state initially passed the tax.
Amazon previously argued it didn’t have to remit sales tax to the state because it didn’t have a physical presence here.