Photo: Andrew Harrer/Bloomberg via Getty Images
One of the world’s biggest companies has not paid any Federal Taxes for two years. Today, we will walk through how Amazon pays no Federal Taxes on Billions in Profit.
Amazon has been one of the largest tech companies for quite a while. Locking in Billions of dollars a year in profit, it would be hard to imagine that the giant online retailer would pay no taxes.
Although you may see headlines saying Amazon pays ‘No Taxes’, it’s a little more complicated than that. In fact, Amazon does pay income tax.
The real controversy is regarding Federal Tax. In which Amazon has paid none of, Legally. Many democratic leaders have spoken out on this topic.
Earlier this Summer, Joe Biden stated:
“No company pulling in billions of dollars of profits should pay a lower tax rate than firefighters and teachers.”
Responding to the backlash, an Amazon spokesperson issued the following statement:
“Amazon pays all the taxes we are required to pay in the U.S. and every country where we operate, including paying $2.6 billion in corporate tax and reporting $3.4 billion in tax expense over the last three years.”
The avoidance of the Federal Tax comes from Amazon’s investments and job creation. With Amazon reinvesting their capital into their business, innovation, and infrastructure, the new depreciation deductions give them quite a tax break.
Amazon has reportedly spent over $160 billion since 2011 on investments.
Still, the tax reform of 2017, which lowered the corporate tax rate from 35% to 21%, has benefited Amazon up to $789 million. In a separate accounting category, the internet giant reported “cash taxes payable” of $1.2 billion in 2018 and $957 million the previous year
Take a look at Amazon’s effective Tax rate over 10 years:
(Source: Institute on Taxation and Economic Policy analysis of SEC filings)
When people refer to Amazon paying No Taxes, it’s usually regarding Federal Tax. Amazon does pay income tax, however, not as much we would expect from one of the world’s richest companies.
So, How does Amazon lower their Income Tax to the Minimum?
Although Amazon brings in Hundreds of Billions in revenue, their profit margins are still quite low. The company reportedly brought in only $9.4 Billion in profit in 2018.
This comes into play when you remember that the corporate tax is based on profit, not income.
In order to reduce their income tax, Amazon grants its employees in shares of the company. And as mentioned before, the company reinvests its capital.
Amazon isn’t the only one
If you think that Amazon is the only company legally dodging taxes, think again. Netflix, General Motors Co., and Prudential Financial Inc. have legally avoided federal taxes as well.