December 14, 2018

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What We Don’t Know About Amazon’s Split HQ2

What We Don’t Know About Amazon’s Split HQ2
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States, cities and counties often run their own incentive programs, each with different requirements. New York State, for example, provides tax credits to employers that move to certain parts of boroughs beyond Manhattan. Many experts expect large deals like this to come with offerings that would require state legislative approval. Usually they involve little public debate. After just a 10-minute public comment period, Apple got $213 million in state and local incentives to build a data center in Iowa, according to The Des Moines Register.

New York offered potentially hundreds of millions of dollars in subsidies, according to a person briefed on the process.

While Virginia has a reputation for being business friendly, it is not known for particularly outsize incentive programs. Greg LeRoy, executive director of Good Jobs First, which tracks corporate subsidies, said he expected that the legislature would pass a larger package just for Amazon.

In New York, Amazon could also benefit — directly or indirectly — from a provision in the tax overhaul that President Trump signed last year. To spur investment in “distressed” parts of America, the provision creates so-called opportunity zones, which were selected this year by governors and approved by the Treasury Department. Projects in those zones can reduce capital gains taxes and avoid those taxes entirely on profits from an investment held for more than a decade.

There are a dozen opportunity zones in Long Island City, including in several areas marked for business development.

Proposed program regulations from the Treasury Department would prevent Amazon from reaping the largest possible windfall of the tax break, because most of its business is outside the zone. But Amazon could set up a real estate company to buy land for the headquarters or surrounding buildings — and avoid any potential capital gains taxes if it ended up selling the property. Or it could lease the land from another developer that invests in the zone, insisting on more favorable leasing terms because the landlord is in line to reap opportunity zone tax benefits.

“Amazon coming, plus the opportunity zone incentive, is a huge gift to whoever owns the land in Long Island City,” said Brett Theodos, a principal research associate at the Urban Institute, a nonpartisan research group. “Now, if Amazon is a shrewd negotiator, they’re going to say: ‘We don’t have to come here. We want a piece of that.’”



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