Which of the following is a challenge faced by local governments as a result of Amazon's tax practices?

The correct choice highlights a significant challenge local governments encounter concerning Amazon's tax practices, specifically referencing how these practices can lead to decreased local income, even while states may receive tax revenues.

When Amazon utilizes its scale and online model, it often benefits from tax loopholes and incentives that allow it to pay lower rates than local businesses or traditional brick-and-mortar establishments. While states may collect sales taxes from online purchases, the revenues generated might not be sufficient to offset the local economic impacts.

Small businesses often rely on local sales for their revenues, and if they are unable to compete effectively with Amazon, they may struggle to survive. Consequently, the local economy may suffer from reduced spending and lower tax revenues that support community services. The disparity creates a situation where local governments may find their financial resources constrained, as they don't benefit from the broader tax revenues the state receives in the same way they would from locally thriving businesses.

The dynamics of e-commerce also mean that even when taxes are collected, if customers are primarily shopping online with large retailers like Amazon, local stores are adversely affected. This leads to declining income for local governments that depend on the health and vitality of their local economy.