It’s a common belief that despite its billions in revenue, Amazon pays no taxes. But is it true that
amazon pays no taxes? And if the rumor is in fact true that Amazon pays no taxes, how is it possible for such a profitable company in the public eye to avoid paying any taxes without running afoul of the IRS? The reality is, it is not true that Amazon pays no taxes but the true accounting narrative is fairly complicated. It could easily be argued that although Amazon does pay income taxes, further transparency is needed to investigate the role of tax credits in keeping the tech giant from paying its fair share of federal taxes. Although Amazon does pay income taxes, it did not pay any federal taxes in 2018.
Rumor: Amazon pays no taxes
Many democratic contenders have used Amazon’s taxes as a talking point to discuss income inequality. Former Vice President and presidential hopeful Joe Biden even tweeted about how Amazon paid a lower tax rate than the average American teacher. Amazon quickly tweeted back citing that they have in fact, paid billions in “corporate taxes” since 2016. Amazon’s tweet also references the complicated U.S. tax code which has led to the misunderstanding surrounding the company’s tax burden.
The Wall Street Journal explains how “By one measure—comparing pretax U.S. profit and the company’s “current provision” for U.S. income taxes—Amazon earned $11 billion and had a tax bill of negative $129 million in 2018, essentially getting a net benefit from the tax system.” So while the belief that Amazon pays no taxes is not technically true, there is good reason for the misunderstanding.
Does Amazon pay taxes?
So are the accusations that Amazon pays no taxes founded? Yes and No. The full picture of Amazon’s financial statement is a bit complicated but in short, “it does pay taxes. In 2017, Amazon paid close to $1 billion in income tax. In 2018, the amount jumped to $1.18 billion, accounting for local, state, and international taxes” according to an analysis by Forbes.
However, the company receives extensive tax breaks that result in Amazon paying no federal or corporate taxes. Why would the U.S. tax code create what seem like legal loopholes that allow a financial giant to get away with paying so little?
Forbes explains that “Tax deductions can be incorrectly categorized as “crony capitalism.” But tax deductions, tax credits, and other incentives act as an important driver for organizations to then stimulate economic activity, job creation, and innovation.”
Amazon gets its tax breaks through three main avenues: by investing in research and development; by investing in property and facilities; and employee stock compensation. The underlying economic assumption is that by making it financially viable for Amazon to invest in these three areas, there will be an overall economic benefit felt by the population at large.
Economist Tyler Cowen summarizes Amazon’s tax situation: “the main reason Amazon as a corporate entity does not pay much in taxes is because the company so vigorously reinvests its profit. The resulting expensing provisions lower their tax liabilities, in some cases down to zero or near-zero. That is in fact the kind of incentive our tax system is supposed to create.”
