Amazon’s Business Rates Bill – Sigh, It’s A Tax On The Value Of Property Used

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There’s yet another salvo in this complaint about how much tax Amazon pays, this time it’s that one about business rates. The problem here being that business rates themselves are a tax on the value of property being used in the course of a business. So, if people use less property, or the property they do use has less value, then they’ll pay less in business rates. This isn’t an error in the system, it’s the very point of it.

For business rates are the closest we’ve got to that perfect taxation system, land value tax. We – correctly – note that no one’s making land any more. Thus the supply is near perfectly inelastic. Inelastic things are lovely things to tax. And with property values it’s not even the user of the land that pays the tax, it’s the landlord, the owner off that land, who does. There’s a price people are willing to pay to occupy a certain piece of land. We could not tax land values and that amount would go to the landlord. We could tax that land value and the amount being paid by the tenant would be the same, it’s just the landlord would receive less of it. In technical terms business rates are incident upon the landlord, not the business.

We’ve even empirical truth behind this, when enterprise zones reduced business rates then rents rose.

So, to start with, it’s not Amazon paying these business rates, nor Debenhams, HoF or BHS. It’s the landlords that own the land upon which the various business outlets stand.

Secondly, we want people using more of that valuable resource, land, to pay more in tax for using that valuable resource. The users, given point one, being the landlords. If you own £50 million of Oxford Street then you should, righteously, be paying more tax than the bloke who owns 30 pence worth of Bradford. And yes, this does mean that land purposed to being a flagship store on Oxford Street should pay more in business rates than a warehouse in Bradford.

That then meaning that a business model providing retail services should, overall, be paying less in tax for the use of Bradford warehouses than one which uses prime retail space on Oxford Street. That is, the entire premise behind complaints about Amazon’s rates bill is economic nonsense.

Amazon has confirmed it pays UK business rates of only £63.4m, almost £40m less than Next, despite clocking up more than double the sales in the UK of the clothing and home retailer. In written evidence to a parliamentary inquiry, the online specialist said its UK sales amounted to £8.77bn and it paid business rates on about 94 buildings and on a number of locker sites in the UK. The figures indicate that business rates amount to less than 1% of Amazon’s sales compared to 2.5% for Next, 1.8% by Marks & Spencer and nearly 3.5% by Debenhams. Last year Next paid £100m in business rates on sales of about £4bn; M&S paid £184m on sales of about £10bn and the John Lewis Partnership, which includes the chain of department stores and Waitrose, paid £174m on sales of nearly £12bn.

Rates aren’t levied upon sales, they’re levied upon the use of property. Use less property, or property of less value, and the business model will pay less in rates. This is normal. Amazon’s missing a trick in not pointing this out:

In the past, some reports about the business rates that Amazon pays in the UK have been based on just a small number of our fulfilment centres in England and Wales, and did not take account of our substantial investment right across the country. We have close to 100 UK sites, and last year Amazon paid business rates of more than £63 million – tens of millions of pounds more than estimates and more than is paid by many well-known high street retailers. These sites include fulfilment centres, research and development centres, corporate offices in London, Amazon Lockers, Whole Foods Market stores, and delivery stations. These diverse facilities are home to more than 27,000 full-time employees and the result of nearly £10 billion invested across the UK since 2010. Many of our facilities are very large—a million square feet or more with thousands of employees—and need to be located outside city centres, with major transportation links that enable us to meet the needs of customers and sellers. Other locations, like Whole Foods Market stores, our corporate offices, and research and development centres, are in the heart of major cities like London. In each case, the business rates for those facilities are set by local authorities.

No, they’re not really set by local authorities. They’re set by the value of the property being used. Less valuable places pay less tax.

So, why is there all this shouting about it then? Because the landlords are mightily pissed about the fall in the values of retail commercial property. Thus they’d like this other business model, the one that doesn’t have to pay those landlords for that retail commercial property, to be taxed. And a closer look at all of this would find a financial PR firm somewhere running these continual stories about business rates. This is the landowners shouting about their losing money these days, nothing more. And we should reject the basic contention out of hand as a result. Amazon should be paying less in business rates than Next, Waitrose or Marks & Spencers. That’s the point of the system itself.

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