Another issue -- "no taxation without representation!" A business in a city that overtaxes can always threaten to move. It's employees can lobby that city, or vote in its elections. Same at the state level. A company outside the city has no assets it can pull from the city. Yes, Amazon could refuse to sell there, but it's not costing the city any jobs.
What prevents the city from double-taxing outside companies? There's not much they can do about it. And if you think no city would do this, look into "hotel taxes." Lots of places add taxes to hotels without any service cost justification. The hotels complain, but they aren't going to up and move from tourist areas. They just pass the cost along to tourists. Since these are all outsiders with no local representation, the tax has little opposition.
What prevents the city from double-taxing outside companies? There's not much they can do about it. And if you think no city would do this, look into "hotel taxes." Lots of places add taxes to hotels without any service cost justification. The hotels complain, but they aren't going to up and move from tourist areas. They just pass the cost along to tourists. Since these are all outsiders with no local representation, the tax has little opposition.