Chicago bid for Amazon won’t be impaired by cloud tax – Government News

on Sep15

14 September 2017 | 8:13 pm

Could Chicago’s so-called cloud tax cast a pall over the city’s bid for Amazon’s second headquarters?

The $136 billion Amazon earned last year included $12 billion that had nothing to do with delivery drones, cardboard boxes or enormous warehouses. The revenue belonged to Amazon Web Services, a division that leases server space to other companies to host websites and cloud-computing infrastructure—and AWS is a runaway market leader in that space. That kind of cloud-based commerce is the target of a tax that roiled Chicago’s tech community when it was imposed last year, making Chicago one of the first major cities to attempt to offset sales tax declines by tapping cloud providers.

Until last year, Chicago tech companies could lease space tax-free on AWS’ servers. But in January 2016, the city expanded its Lease Transaction Tax to include cloud-computing services such as AWS. Amazon tacked the 5.25 percent “cloud tax” onto the bills it sent Chicago customers.

Chicago’s tax is unique in that it’s levied by a municipality, rather than a state. AWS’ “tax help” webpage lists 52 entities from which it collects either sales tax or other transaction taxes, and the list includes all 50 states, the District of Columbia, and Chicago.

Perhaps that’s a bad look for Chicago, but it’s unlikely to affect the city’s Amazon headquarters bid for several reasons. First, the tax is familiar territory for Amazon, whose home state of Washington has collected sales tax from AWS subscribers since 2012. Second, AWS already does business in Chicago—it opened a 200-employee Loop office last year. Finally, the tax won’t cost Amazon much, because while many tech companies lease their Internet real estate from AWS, Amazon owns its own infrastructure.

“The cloud tax won’t discourage them from locating in Chicago, not from an AWS sales perspective. It’s their customers who are taxed,” says attorney Michael Gray, a partner at Neal, Gerber & Eisenberg.

Where the tax is more likely to come in play is in the cloud-based software Amazon may buy to support its HQ2 workforce. Amazon CEO Jeff Bezos indicated he will staff HQ2 with up to 50,000 employees, and according to Gray, the cloud-tax bill on Amazon’s third-party software subscriptions could be significant. That’s fodder for the sort of tax break Chicago (and Illinois) will likely need to produce en masse in order to win Amazon’s HQ2 derby. The cloud tax “won’t be a determining factor, but it will be a chip—everything is a chip,” says Gray.

Chicago tech firms made a fuss when the tax was announced in 2015, prompting Mayor Rahm Emanuel to lower the rate to 5.25 percent from 9 percent and offer exemptions for small startups. Since then, Chicago’s existing tech businesses have shrugged off the tax.

“People complain about it, but ultimately it has a marginal impact, and hasn’t caused enough outrage for people to really do anything about it,” says Eric Olson, a VP at Chicago-based Outcome Health and former deputy director of World Business Chicago, a nonprofit connected to City Hall that aims to attract businesses to Chicago. Still, Olson wouldn’t be surprised if the arises in negotiations. “(Amazon CEO Jeff) Bezos is tough. He’ll extract maximum value.”

More:

Whatever it costs to land Amazon, Chicago should pay it

What would Amazon do to Chicago’s housing market?

Who will lead Chicago’s Amazon charm offensive?



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