Amazon's new Virginia data center is getting a bunch of tax breaks, and it gives insight into how the company reduces its tax liability (AMZN)

Amazon CEO Jeff Bezos

Even outside of the deal that Virginia offered to Amazon to expand its operations there, the company has been benefiting from tax breaks in the state.
Amazon operates a number of data centers there — and Virginia offers tax abatements to the largest data-center operators.
The state has also designated land in its data-center hub as an "opportunity zone," which qualifies Amazon for federal tax breaks, too.
Amazon is estimated to pay $0 in federal taxes for 2018. This gives some insight into how that works.

While Amazon has bailed on its plans for an HQ2 office in New York, things seem to be chugging along for Virginia, the other state where the online retailer has promised a massive expansion.

A new report from Bloomberg's David Kocieniewski detailed some of the hush-hush dealmaking between Amazon and state officials, particularly concerning tax breaks for its plans to build a new data center for its cloud-computing unit, Amazon Web Services (AWS).

AWS representatives reportedly met with the governor and with the state's economic developer, Buddy Rizer, last year. Rizer is the official overseeing the state's runaway success in attracting data-center operators, including AWS.

Virginia is one of Amazon's most major and important locales, with one particular county, Loudoun, playing the starring role. Loudoun is said to be home to the largest concentration of data centers in the world, thanks to its proximity to a major internet interconnection hub and its low electricity rates.

Amazon keeps its data-center plans under wraps, but it has leased millions of square feet across dozens of sites in that county and nearby areas for Vadata Inc., the business unit that operates Amazon’s data centers, Rich Miller at Data Center Frontier reported. Google, Facebook, and many others have data centers in Loudoun, too.

Among the topics discussed at some of those meetings were tax breaks for Amazon. One such meeting was reportedly between AWS CEO Andy Jassy, Virginia Gov. Ralph Northam, and the governor's aides. In that meeting, Jassy asked for assurances that Virginia's tax breaks for data centers would continue, Bloomberg reported.

Virginia exempts sales and use tax for the largest data-centers operators, and such breaks are scheduled to sunset in 2035. In the state's 2018 fiscal year, it forgave $79 million in data-center taxes, it said. But the breaks paid off as the state reaped $66.8 million over budget in tax revenues from data centers, too, Michael Neibauer of the Washington Business Journal reported.

But last year, Amazon reportedly also got another, more controversial tax break.

Although Loudoun is one of the richest counties in the nation, the state designated some of the land that Amazon was interested in there as an "opportunity zone." An "opportunity zone" is a Trump-era program that can give tax breaks to companies and developers who invest in economically distressed communities.

The state submitted this land for the program, the Treasury Department approved it, and AWS was under contract to build a data center there in the following month, Bloomberg reported.

Rizer's spokesperson insisted to Bloomberg that Amazon never asked for this particular tax incentive, and Amazon told Business Insider the same.

An Amazon spokesperson told us, "Any speculation that AWS officials worked with the Commonwealth of Virginia to designate an Opportunity Zone for tax purposes is misguided and incorrect. The conversations between AWS leadership and the Governor were about the continued AWS investments we are making in Virginia, including our renewable energy projects, AWS Educate program, and the benefits that cloud computing has on local businesses in the commercial, public sector, and education segments."

And the site it chose for its Virginia HQ2 offices was in Crystal City, Arlington County, which is not in an opportunity zone, Bloomberg reported.

Not that Virginia is unique in its use of the opportunity-zone program.

There are plenty of critics of the program who say the rules around the opportunity zones are too lax, that it helps the rich more than the poor, and that it hastens gentrification.

We don't know what other tax incentives Amazon was offered by various government entities when it asked them to compete for its HQ2 because Amazon required government entities to sign nondisclosure agreements.

However, Virginia's choices give a little insight into how Amazon reduces its tax bills. It may have paid no federal taxes on its $11.2 billion profit last year, according to the progressive think tank Institute for Taxation and Economic Policy.

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