Cannock Chase District Council must refund Amazon £3.2million for a miscalculation in the rateable value of its Rugeley warehouse.

What kind of miscalculation?

When is floorspace not floorspace? When it’s a mezzanine floor. This is the grounds of Amazon’s successful appeal.

When the Rugely warehouse opened in 2011, the Valuation Agency Office assessed its rateable value of £3.18million. A major factor in their calculation is the square footage of a building. This fulfilment centre has an actual footprint of 550,000 square feet. But additional internal mezzanine floors increase this to a whopping 2million square feet. Amazon’s argument is that mezzanine floorspace does not count within the Rateable value equation. And they are right.

How much is this going to cost the council?

The total the council will have to repay is backdated to 2011, as that is when the miscalculation was applied. That’s the £3.2million. But, there is also the loss of future revenue because the rates for the Rugeley warehouse have been adjusted to the correct floorspace square footage figure. They estimate this will be a 26% reduction in revenue for the council each year. Down to £1.25million, from the current £1.7million. That’s a considerable blow to any local council’s budget.

What is a ‘basic warehouse’?

If a warehouse is defined as a ‘basic warehouse’, rather than a ‘retail warehouse’, it means that it delivers products directly to the customer. And it pays substantially less business rates. Amazon call their warehouses ‘fulfilment centres’, which puts them in the ‘basic warehouse’ category.

The deputy leader of Cannock Chase Council, Councillor Gordon Alcott, questions the fairness of these definitions:

“There doesn’t appear to be a level playing field between the business overheads paid by ‘bricks and mortar’ businesses against those paid by online traders. Amazon describes itself as providing fulfilment centres supplying goods direct to the customer and clearly the business rates system does not reflect this treating such sites as basic warehouses, which means that Amazon is paying substantially less than retail warehouses, and a fraction of the cost per square metre of high street shops. The Council will be writing to the Government and our local MP to see if this issue can be addressed”.

What is Amazon’s response?

An Amazon spokesperson told the BBC: “Business rates are part of Amazon’s broader £18bn investment in the UK since 2010”. They also said that Amazon’s total UK tax payments for 2018 were £793m.

Amazon have won a legal challenge here. This is not about income tax avoidance, dodgy tax refund claims or corporation tax evasion. Their case was successful. As we all adapt to the extra shopping dimension brought to us by the internet, the taxation rules and definitions need to adjust accordingly.