Amazon assures anyone who asks that they are just fulfilling the obligations that are legally required. You don’t like it you must blame the tax codes.
Amazon reported $1.7 billion in federal income tax expense in 2020 and $1.8 billion in other federal taxes, according to the company. It also paid $2.6 billion in state and local taxes and collected nearly $18 billion in sales taxes for states and localities.
This looks important until you realize that the sales tax was not paid by Amazon, only collected and remitted, nor does it account for the Federal employment, Medicare, SS, taxes that are obligated, and deductible, or the state unemployment taxes. So that amounts to a little over 1% of gross sales between the federal, state, and local governments. And nothing is verified or broken down, just a company statement.
There are situations where it is simply not possible to avoid all tax obligations. Either as an intermediary, as in sales tax, or in-state unemployment for works, but those are non-fungible like federal, state, and local income taxes, or even international taxes and subsidiaries with their own methods of avoiding positive tax obligations, such as keeping profits offshore.
So stating that Amazon pays no taxes is misleading.
The public never sees the actual taxes paid only the numbers that Amazon presents to the public and in SEC filings. But you can be sure actual amounts paid will be less than what Amazon allows the public to see.
Amazon tweeted: “We’ve paid $2.6 billion in corporate taxes since 2016. We pay every penny we owe. Congress designed tax laws to encourage companies to reinvest in the American economy. We have. $200 billion in investments since 2011 and 300,000 US jobs. Assume VP Biden’s complaint is with the tax code, not Amazon.”
Amazon is not alone. The other big tech companies do the same, and it is certainly not limited to Tech, but it does concern Amazon and its massive distribution center planned for Churchill Borough through the Hillwood proposal.
It does not pay anything but token amounts and under pressure to individual states or to local municipalities. It frequently avoids paying local taxes, school taxes, EMS, Fire, Police, even utilities.
Some make claims that ultimately the consumer pays for all taxes and that is correct, but the profits generated by these giveaways and avoidance are kept by the corporation, unlike individuals who cannot hide income or get tax credits.
Amazon only supported paying sales tax when it needed to build warehouses in the state and thus would have to collect sales tax. By supporting the collection of sales taxes everywhere also put pressure on competitors who did not already have the infrastructure and programs to efficiently collect all these taxes, a competitive advantage for Amazon that just happened to increase its profits.
Others claim that Amazon pays no federal taxes because it is not profitable. It pays the best tax people to find ways to avoid net profits using mostly the advantages passed during Republican administrations. While it is legal, pushing the interpretations to the limit, does not justify the continued lobbying for tax credits and tax forgiveness from state and local authorities. Arguing that Amazon without retail stores and normal expenses for retail, as well as needing support for manufacturing, R&D spending is a red herring. It is also legal but questionable in the scale of application, to use stock options as another tax reduction device.
Considering that Amazon claims losses from overseas activities that have nothing to do with US tax codes for example it exaggerates the deductions and losses so that in 2018 it actually got a federal rebate of $128,000 from the government on $11.2 billion in revenue.
They claim it is legal and normal for businesses to use the tax code. But doing that Those who defend Amazon always do so with general terms and nothing specific that can be fact-checked, mostly calling those who point it out as ignorant about the tax code.
See this total story on the Bloomberg link below.
Because of the traditional “economic development incentives” state and cities give out, Amazon will likely pay few if any of its corporate property taxes or sales taxes, either. Many states automatically exempt a project this size from sales taxes on building materials, machinery, and equipment. If they don’t grant that automatically, Amazon will no doubt demand it. At the local level, politicians will be under terrific pressure to abate property taxes to mirror the state’s generosity with corporate income tax credits that will reduce or eliminate its income tax bill for many years. The personal income tax diversions described here are on top of those.
https://www.seasoninvestments.com/insights/taxing-amazon/
Taxing Amazon
Posted on January 21, 2020
“Because we are in a low-margin industry and invest in innovation and infrastructure, we don’t make as much pretax profit as other tech companies, so our taxes are lower.” – Amazon spokesperson
Few would argue that one of the most disruptive companies in recent history has been Amazon (AMZN). Founded a little over 25 years ago in Jeff Bezos’s garage (how cliché!), the venture has grown to be one of only a handful to crest $1 trillion in market capitalization. The company generates over $250 billion in annualized revenue, employs over 750,000 people and has enough Amazon Prime subscribers to populate the 14th largest country in the world. Most of us think of Amazon as a retail platform, but its business also includes video and music streaming services, film production and distribution, Alexa, Amazon Web Services, Whole Foods and others. The explosion of this innovation machine onto the world stage over the past couple of decades has been absolutely amazing by any measure.
Lately, however, the company has been receiving attention for a different kind of achievement – its $0 Federal income tax bill. Around this time last year, British data journalist Mona Chalabi posted the below graphic on social media highlighting the disparity between the recent rise in Amazon’s profits and the company’s tax bill.
Not surprisingly the post and many others like it have spread virally amongst those who are using it as an illustration of how our economic system is broken. Oddly enough, the sentiment that Amazon is “not paying their fair share” of taxes has been trumpeted by prominent members of both political parties.
(I’d like to pause and call attention to the fact that I just identified something Biden, Sanders, and Trump all agree on – this post is already a great success!)
Amazon’s tax bill (or lack thereof) is an interesting topic and one that is soliciting a wide variety of responses. Some critics are painting Amazon and Jeff Bezos as bad actors, some are simply pointing to a tax code that they believe needs reform and some think that as long as the company is operating within the confines of the law there is no problem. Overall, though, a common sentiment seems to be that Amazon and others like it are simply not paying their fair share. So what exactly is going on here? Is Amazon really making billions and not paying any taxes? If so, how is that even possible? Let’s dive in.
One point to make on the front end is that Amazon’s tax returns are private, and public financial statements do not include specific breakdowns of how much tax is being paid at what level. That said, one thing we do know for sure is that Amazon is, in fact, paying taxes. The nearby chart from the Wall Street Journal shows total taxes rising steadily in recent years to $1.2 billion in 2018. That said, none of these taxes went towards Federal income tax, but rather were paid towards state and local taxes, payroll withholdings and various international tax liabilities. So the first clarifying point I’d make is that those characterizing Amazon as “paying no taxes” should more accurately specify that the claim pertains to Federal income tax only.
In turning our attention then to Federal income tax specifically, we find that there are multiple contributing factors that are leading to the absence of tax liability for the company. Let’s look at each in turn.
Loss Carryforwards
Amazon, more so than most companies, aggressively reinvests its profits back into the business. As such, it has spent the better part of its first 25 years of existence operating at a loss or near breakeven. The tax code allows corporations to carry these losses forward and apply them to future taxable income. Amazon’s net operating loss carryforward sat at $627 million at the end of 2018. Given the size of the company it shouldn’t take much at all for these losses to be used up, and as we’ll discuss below the deductions and credits they’re taking to reduce taxable income are having a much greater impact than these loss carryforwards.
Bonus Depreciation
One of the ways Amazon plows money back into the business is by investing heavily in fixed assets such as property, plant and equipment. Over the past ten years the company has built out data centers, distribution networks and even solar and wind farms to power its facilities – all to the tune of nearly $200 billion. Historically the company would be required to capitalize these investments and take depreciation expense over many years, but part of the 2017 tax overhaul made a provision for “bonus depreciation” whereby a company can fully expense a capital investment that it otherwise would have had to capitalize and depreciate over many years, perhaps even decades. Given its high levels of capital investment, this has worked tremendously to Amazon’s benefit over the past two years. The allowance of bonus depreciation is not permanent and will phase out slowly between now and 2027.
Stock-based Compensation
Amazon, like most other publicly-traded companies, compensates its executives with both cash and stock. Stock based compensation is interesting because, although it doesn’t cost the company any cash, the value of the stock is still deductible as an expense at its fair market value once the shares are vested. The higher the stock price at the time of vesting, the higher the tax deduction for the corporation. Many look at this system as a sham of sorts, but in reality the issuance of new shares “cost” the company’s shareholders just as much as if the employee had been compensated with cash. Furthermore, it’s widely held that tying executive compensation to the company’s share price is an effective way to align key employee’s incentives with those of the shareholders. A final point to make is that just like cash compensation, for every dollar the company is deducting as compensation expense, the employee is picking up as ordinary income. This means payroll taxes as well as state and federal income taxes are still being paid on that dollar, and probably at higher effective rates – it’s just showing up on the employee’s tax return instead of on Amazon’s.
R&D Tax Credits
Finally, and perhaps most interestingly, Amazon has benefited greatly from the Research and Development tax credit built into our country’s tax code. The R&D tax credit stems from legislation that was passed in 1981, and since that time the credit has evolved in nature and been extended fifteen different times before being made permanent in 2015. The intention of the R&D credit is to incentivize innovation throughout the economy and ultimately keep technical jobs here in the US. Activities that qualify for the credit are broad, but they essentially cover the development of improved processes and systems that are intended to result in better performance, quality and reliability of our economy’s goods and services. When a company spends money on qualifying activities they are awarded tax credits for up to a certain percentage of the expenditure (between 5-10% on average). This credit is in addition to the deduction they are getting for incurring the expense on their income statement. Amazon, being the technological innovator that it is, has qualified for massive amounts of these credits over the years, and as of the end of 2018 had accumulated $1.4 billion in unused tax credit carryforwards.
So now that you understand how Amazon has reduced its tax bill, the next question to ask is why they have been given the opportunity and whether or not it is right to do so? A question I will explore in detail in next week’s post!
Disclosure: I/we have no positions in AMZN, and no plans to initiate any positions within the next 72 hours. I/we are not receiving compensation for this article.
Amazon is not alone as a multinational not paying federal taxes. Here is an article listing others in different industries who have taken advantage of the recent federal laws that allow the the option of no federals taxes.
Published — April 11, 2019
YOU PAID TAXES. THESE CORPORATIONS DIDN’T.
Amazon.com Inc.’s U.S. profits before taxes were $10.8 billion in 2018, made by shipping everything from women’s cocktail dresses to toilet paper. But unlike its millions of customers, the company paid no taxes in the United States last year and said it was owed $129 million. (AP Photo/David Zalubowski)
About twice as many of the largest U.S. companies reported they didn’t owe taxes in 2018 compared with previous years, a partial result of the 2017 Trump tax law, according to a report.
About twice as many of the largest U.S. companies reported they didn’t owe taxes in 2018 compared with previous years, a partial result of the 2017 Trump tax law, according to a report.
Contributing Reporter
This story was published in partnership with NBC News.
INTRODUCTION
Taxpayers are scrambling to make last-minute payments due to the Internal Revenue Service in just four days, but many of the country’s largest publicly-held corporations are doing better: They’ve reported they owe absolutely nothing on the billions of dollars in profits they earned last year.
At least 60 companies reported that their 2018 federal tax rates amounted to effectively zero, or even less than zero, on income earned on U.S. operations, according to an analysis released today by the Washington, D.C.-based think tank, the Institute on Taxation and Economic Policy. The number is more than twice as many as ITEP found roughly, per year, on average in an earlier, multi-year analysis before the new tax law went into effect.
Among them are household names like technology giant Amazon.com Inc. and entertainment streaming service Netflix Inc., in addition to global oil giant Chevron Corp., pharmaceutical manufacturer Eli Lilly & Co., and farming and commercial equipment manufacturer Deere & Co.
The identified companies were “able to zero out their federal income taxes on $79 billion in U.S. pretax income,” according to the ITEP report, which was released today. “Instead of paying $16.4 billion in taxes, as the new 21 percent corporate tax rate requires, these companies enjoyed a net corporate tax rebate of $4.3 billion, blowing a $20.7 billion hole in the federal budget last year.” To compile the list, ITEP analyzed the 2018 financial filings of the country’s largest 560 publicly-held companies.
The following is a list of the country’s largest publicly-held profitable corporations that paid no federal income taxes in 2018 on billions in U.S. income, according to ITEP analysis of 560 companies. ITEP reports U.S. income before federal taxes, and takes into consideration paid state and local taxes, which could reduce or increase U.S. income. The report does not look at total tax provision, a number that could include foreign taxes and deferred taxes. All figures, except for tax rate, are in millions.
| Company | U.S. Income | Federal Tax | Effective Tax Rate |
| Amazon.com | $10,835 | –129 | –1% |
| Delta Air Lines | $5,073 | –187 | –4% |
| Chevron | $4,547 | –181 | –4% |
| General Motors | $4,320 | –104 | –2% |
| EOG Resources | $4,067 | –304 | –7% |
| Occidental Petroleum | $3,379 | –23 | –1% |
| Honeywell International | $2,830 | –21 | –1% |
| Deere | $2,152 | –268 | –12% |
| American Electric Power | $1,943 | –32 | –2% |
| Principal Financial | $1,641 | –49 | –3% |
| FirstEnergy | $1,495 | –16 | –1% |
| Prudential Financial | $1,440 | –346 | –24% |
| Xcel Energy | $1,434 | –34 | –2% |
| Devon Energy | $1,297 | –14 | –1% |
| DTE Energy | $1,215 | –17 | –1% |
| Halliburton | $1,082 | –19 | –2% |
| Netflix | $856 | –22 | –3% |
| Whirlpool | $717 | –70 | –10% |
| Eli Lilly | $598 | –54 | –9% |
| IBM | $500 | –342 | –68% |
| Goodyear Tire & Rubber | $440 | –15 | –3% |
| Penske Automotive Group | $393 | –16 | –4% |
| Aramark | $315 | –48 | –15% |
| AECOM Technology | $238 | –122 | –51% |
| Tech Data | $203 | –10 | –5% |
| Performance Food Group | $192 | –9 | –4% |
| Arrow Electronics | $167 | –12 | –7% |
| Source: Institute on Taxation and Economic Policy |
The controversial Tax Cuts and Jobs Act, signed by President Donald Trump in December 2017, lowered the corporate tax rate to 21 percent from 35 percent, among other cuts. That’s partly to blame for giving corporations an easier way out of paying taxes, said Matthew Gardner, an ITEP senior fellow and lead author of the report. The new corporate tax rate “lowers the bar for the amount of tax avoidance it takes to get you down to zero,” he said.
“The specter of big corporations avoiding all income taxes on billions in profits sends a strong and corrosive signal to Americans: that the tax system is stacked against them, in favor of corporations and the wealthiest Americans,” Gardner wrote in the report.
‘I DON’T SEE THAT BEING FAIR’
The Moline, Illinois-based Deere, which was started in 1837 by blacksmith John Deere, who made farming plows, reported earning $2.15 billion in U.S. income before taxes. It owed no U.S. taxes in 2018 and reported that it was owed $268 million from the government, after taking into consideration various deductions and credits, according to its annual filing with the Securities and Exchange Commission. The company reported global profits of $2.37 billion.
Asked about the rebate, Brian Moens, one longtime Deere employee, was contemplative. “Everyone should pay their fair share whether it is an individual or a corporation,” he said. “If just the small individuals are paying it without large corporations doing their part, I don’t see that being fair.”
The blacksmith John Deere set out in 1837 to make a plow that could break up the prairie soil of Illinois. More than 180 years later, the Moline, Illinois-based Deere Co., which sells farming and commercial equipment worldwide, Deere had $2.15 billion in U.S. income before taxes in 2018. Its federal tax bill: zero. Deere said the U.S. government owed it $268 million in 2018. (Charles & Hudson / Creative Commons)
Moens credits his wife with getting their taxes filed early in February. They anticipated a refund, like in past years, because they overpaid during the year. “It wasn’t quite what Trump had said it was going to be,” said Moens, who assembles farm planting tractors at the Moline factory. “It was less than what we had received in previous years,” although nothing had changed.
Deere declined to elaborate on its taxes. Spokesman Ken Golden said, “We do not provide comments beyond what is contained in Deere & Company’s public filings as we believe the public filings provide the necessary information when they are assessed in their entirety.”
Trump’s tax cut bill slashed the corporate tax rate and eliminated and tightened certain deductions, while providing other new tax breaks to companies. The cut in the corporate tax rate alone will save corporations $1.35 trillion over the next 10 years, according to the Joint Committee on Taxation, which reports to the Senate and House finance and budget committees.
The United States theoretically had one of the highest corporate tax rates in the world, though many firms had an effective rate much lower. Previous administrations, including President Barack Obama’s, had sought to modestly cut the corporate tax rate to make it more competitive. After taking office in January 2017, Trump and the Republican-controlled Congress quickly enacted one of the most sweeping tax bills in decades — an overhaul that is estimated to raise the federal deficit to $900 billion this year, and more than $1 trillion, starting in 2022, according to the Congressional Budget Office, a nonpartisan legislative agency.
Corporations generally don’t get “refund” checks as individuals do for overpaying. Instead, corporations calculate how much in taxes they owe by rolling up various deductions and tax credits that then lower the tax bill until, in many cases, they owe nothing in taxes or accrue a deficit, referred to as a rebate, that they use to offset taxes in the future.
Robert Willens, an independent tax advisor who teaches corporate tax courses at Columbia Business School, said corporations have typically sought to obtain a refund on taxes paid in preceding years when they generated net operating losses in those years. The new tax bill eliminated that ability to carry back those net operating losses, but it allowed companies to carry the losses forward indefinitely, he said. Willens said he expects to see fewer refunds than in the past since net operating losses were the principal source.
“However, if a corporation files an amended tax return, because it now decides that it paid too much in taxes in a prior year based on its revised treatment of an item of income or expense, it can certainly get a refund of all or a portion of the taxes paid in the earlier year,” Willens said.
WE PAY ALL REQUIRED TAXES
Studies show that many corporations rarely paid the 35 percent rate under the old tax code. Over the years, companies found many ways to cut their tax bills, from sheltering foreign earnings in low-tax countries and banking credits for money spent on research and development to deducting the expense of stock options for executives.
Gardner said the new tax law has left most of the old tax breaks intact while cutting the rate by almost half, resulting in a “continued decline in our already low corporate revenues.” Revenues from the corporate tax fell by 31 percent in 2018 to $204 billion from $297 billion. “This was a more precipitous decline than in any year of normal economic growth in U.S. history,” he wrote.
Tax Foundation chief economist Kyle Pomerleau said the U.S. corporate tax law was “in need of reform.” He said the new law reduced the U.S. rate to discourage companies from moving profits to countries with lower tax rates as well as allowing for certain deductions that encourage more immediate investment in factories and equipment.
Today’s ITEP report is partly a follow-up to a multi-year analysis of profitable U.S. corporations that showed many paid zero taxes. The institute reviewed the financial filings of more than 600 corporations ranked on the Fortune 500 list between the years 2008 and 2015. On average, about 30 companies each year reported zero U.S. taxes or less. ITEP identified more than twice as many companies claiming they owed no U.S. taxes in 2018.
“The specter of big corporations avoiding all income taxes on billions in profits sends a strong and corrosive signal to Americans: that the tax system is stacked against them, in favor of corporations and the wealthiest Americans.”
MATTHEW GARDNER, ITEP SENIOR FELLOW AND LEAD AUTHOR OF THE REPORT
One new significant provision expanded companies’ ability to write off certain investments in equipment and factories as well as intellectual property, allowing a full expensing or a 100 percent write off immediately. The rule is in effect until 2022, but gradually phases out by the end of 2026.
Jeffrey Hoopes, an accounting professor at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, said the government typically provides such tax breaks during an economic recession “to get companies to invest more” — not when the “economy is doing well.” The U.S. economy grew 2.9 percent in 2018, as fast as or faster than any year since 2005.
Amazon reduced its tax bill partly through accelerated depreciation deductions primarily on equipment, according to its federal filing. In addition, Amazon stated that it has tax benefits related to excess stock-based compensation. ITEP found that Amazon reduced its tax bill by $1 billion through deductions for expenses related to stock-based compensation, one common means for reducing tax bills.
The Seattle-based retail and technology behemoth reported a federal tax rebate of $129 million on $10.8 billion in U.S. income before taxes.
An Amazon spokesman said the company “pays all the taxes we are required to pay in the U.S. and every country where we operate.”
The spokesman said Amazon has paid $2.6 billion in taxes over the last three years but declined to specify whether those taxes were paid in the U.S. or overseas.
PROFITS: HALF A BILLION. REFUND: $342M
Pharmaceutical and technology companies have long been criticized for leaving profits overseas in countries with little or no corporate taxes, or tax havens like the Cayman Islands, Luxembourg and the Netherlands. The 2017 tax law looked to address those issues by changing the way the profits from foreign subsidiaries are taxed in the United States. As part of the shift to a new tax regime, U.S. corporations were assessed a one-time tax on foreign profits; the tax can be paid over eight years.
A number of companies accounted for the foreign profits payment in 2017 and 2018, resulting in significant tax bills.
Under the new law, a company’s income is only taxed in the country in which it is earned. The U.S. no longer taxes new foreign profits unless they reach a certain threshold, at which point the income is taxed at 10.5 percent, half that of the U.S. effective rate.
Take for example the giant technology hardware and services company IBM Corp., which consistently ranks among the biggest U.S. companies. The company had revenues of $79.6 billion, more than 60 percent of which came from outside the United States. To that end, IBM made a $2 billion tax payment on future foreign profits in 2018, according to its financial filings. Tax advisor Willens noted IBM elected to make the $2 billion tax payment on future overseas earnings in 2018 instead of down the road in the period it occurs as many companies will do.
Meantime, in the United States, IBM reported getting a federal refund of $342 million on its U.S. income before taxes of $500 million, according to ITEP and the company’s annual filing. That computes to an effective U.S. tax rate of negative 68 percent. Its worldwide profits were $8.7 billion – and its total tax provision was $2.6 billion including the foreign tax payment.
IBM did not return requests for comment. On a January conference call with investors, IBM Chief Financial Officer Jim Kavanaugh said it anticipated “an all-in rate of at least 11 percent to 12 percent” in 2019, but he did not elaborate.
Certain tax rules did not change under the 2017 law, such as the ability of companies to offset taxes with business losses from previous years. Prior to filing for bankruptcy in September 2005, Delta Airlines compiled massive losses that it carries forward, allowing the company to forego paying taxes for years.
Bottom of Form
At the end of 2010, Delta had $17.1 billion of federal pre-tax net losses, according to its financial filing; those offsets have dwindled over the years. ITEP states that Delta also was among the companies that used accelerated depreciation of presumably flight equipment to “dramatically reduce their tax rates.” Delta had a rebate of $187 million on $5 billion in U.S. income before federal taxes. Delta did not respond to requests for comment.
Delta’s tax-free days may be coming to an end — soon. In a conference call with investors in December, Delta Chief Financial Officer Paul Jacobson acknowledged that the company may pay “cash taxes” as early as next year. Jacobson told investors the new tax law will save the company $800 million a year at its current earnings level. Will the 21 percent corporate rate help Delta? No — because the company doesn’t need it. Jacobson estimates the company’s cash tax rate will be much lower: between 10 to 13 percent.
https://sccinsight.com/2020/02/09/understanding-amazons-income-tax-bill/
Independent news and analysis of the Seattle City Council. Wordy and nerdy.
Understanding Amazon’s income tax bill
On 02/09/2020By Kevin Schofield In tax
It’s become a common meme in political circles to claim that Amazon pays nothing, or next to nothing, in income taxes. But is it true? Let’s dig in.
Amazon’s 2019 annual report, which was released two weeks ago, gives us a fair amount of data on Amazon’s income tax bill, both in the U.S. and abroad. But the details are complex, and the context in which the numbers are reported is also useful in interpreting the company’s profitability.
Caveat emptor: if you’re expecting me to draw a conclusion at the end as to whether Amazon is paying its “fair share,” you’re going to be disappointed. That’s a political and policy question beyond my pay grade. But hopefully I will provide some elightenment as to what they do pay, and how that compares with other corporations. Also, I’m not an accountant, but I was trained by a Fortune 500 company to read and understand corporate finance and earnings reports; there are almost certainly a few details I got wrong here or didn’t express as precisely as an accountant or lawyer would have, so if you are an expert and find an error, please send me a message and I’ll check it out and try to make corrections.
First, some background on corporate finance to help us understand Amazon’s finances. Large public corporations such as Amazon are required to keep at least four sets of books:
- The financial reports required by the Securities and Exchange Commission (SEC), which are intended to provide transparency to investors as to the health (both present and future) of the corporation’s business activities.
- The financial reports required by the Internal Revenue Service and state tax authorities, which are intended to calculate how much income and other taxes the corporation is required to pay under the tax laws.
- The company’s cash flow, tracking dollars in, dollars out, and dollars in the bank and other investments. This tells the company how capable it is of paying its bills and how much it can withstand downturns in revenues and/or unexpected expenses.
- The company’s budget, which is an internal document that sets targets for revenues and limits for how much each department in the company can spend.
All four of these are different, though related, and they operate under different laws and rules. The most straightforward of the four is the cash flow books, since they deal with the ground-truth of actual dollars moving around. But the first two, the SEC and IRS books, operate under under a different set of accounting rules, referred to as accrual accounting. The essence of the accrual method of accounting is that the point in time when you record revenue or an expense is, in many circumstances, diferent from when money actually transfers hands. The rules for corporate accrual accounting are encapsulated in an industry standard referred to as Generally Accepted Accounting Principles, or GAAP. Both the SEC and IRS heavily influence GAAP, though it’s often the case that the SEC and IRS will decide their own rules for handling some specific case and at some point later those rules will get incorporated into GAAP.
The SEC’s rules are to ensure that companies can’t cook their books to make their company’s business look better than it really is. For example, when a company sells you a $100 gift card, GAAP and the SEC say that it can’t book the $100 revenues right away — it must wait until you actually redeem the gift card, because there is a corresponding expense that must be fulfilled. So it lists the $100 as “unearned revenues” and then accrues it to its earned revenues once you redeem it. In a slightly more complicated example, if you buy a $120 annual Amazon Prime membership, Amazon doesn’t book the $120 in revenues up front; it accrues $10 every month throughout the year as it delivers the accompanying service to you. Expenses work the same way: for example, if Amazon signs a 20-year lease for office space, then it will recognize a deferred expense on its books because it signed a written commitment, and then it will accrue the annual expense year-by-year over the course of the lease as rent is paid. The folks at the SEC explain that this makes sure investors see what the company is doing today, but also gives transparency to everything the company knows will happen in future years.
The IRS’s rules are very similar, and also heavily overlap with GAAP. But they have to deal with tax laws passed by Congress that specify what gets taxed, and when certain taxes can be deferred. A great example of this is “depreciation,” which is accountants’ way of acknowledging that property wears out over time and must eventually be refurbished or replaced — representing a “loss” for the company that can be written off as an expense. The SEC has rules about how many years it takes for different kinds of property to depreciate down to zero, and those rules allow companies to write off a portion of the depreciation every year evenly across that period. But the 2017 Trump tax cut included a provision allowing certain kinds of equipment to be depreciated on an accelerated schedule, giving greater tax breaks in the short term but balancing out in the long term. The net result is that the way depreciation is calculated for the SEC can be different from how it’s calculated for the IRS — so the value of an asset could be one thing according to the SEC, and another according to the IRS.
Amazon’s annual report to the SEC (known as a Form 10-K) is a public record. Its income tax filing with the IRS is not, however, though its 10-K still reports a great amount of detail on its taxes. The one catch, which we will see later, is that the 10-K reports the company’s taxes on an accrual basis, not on a cash-flow basis: we will see accruals for future tax liabilities and credits that don’t represent exactly how much Amazon paid in taxes to the IRS in 2019.
Here’s the top line summary of Amazon’s 2019 fiscal year in its 10-K report; note these are worldwide figures, not just U.S.: (click to expand)
There’s lots of stuff in there we don’t care about, so let’s boil it down to the basics:
Total revenues: $280.522 billion
Operating expenses: $ 265.981 billion
Operating income: $14.541 billion
Income before taxes: $13.976 billion
Provision for income taxes: $2.374 billion
Net income: $11.588 billion
Some notes on this:
- The difference between “operating income” and “income before taxes” relates to certain “non-operating” income and expenses: mainly interest earned and debt service paid.
- It says “provision for income taxes” rather than “income taxes paid” because they’re doing accrual accounting here — this figure includes recognizing future income tax liabilities and credits the company accrued based upon its 2019 activities that it’s required to tell the SEC about now, but won’t figure into its actual tax payments until future years. We’ll drill down on that shortly.
- Hidden in these numbers is an important metric that tells us a lot about the kind of business Amazon runs, how good it is at running it, and how profitable it is. It’s called “operating margin,” and it’s the percentage of the revenue that remains after it pays the expenses it incurred in order to earn that revenue. Amazon’s operating margin on its worldwide business is 5.18% — or put another way, it spent 94.82% of its revenues on the operating expenses required to earn those revenues. Let’s compare that to other large corporations (for their most recent annual report):
Microsoft: 34.14%
Alphabet/Google: 21.15%
Facebook: 33.93%
Walmart: 4.27%
Kroger: 2.16%
Albertsons/Safeway: 1.30%
Lowe’s: 5.63%
Rite Aid: -2.72%
Here’s a table (pdf) breaking out the numbers in detail:
Overall, Amazon looks like a well-run retail business, and a terribly-run tech company. Retail companies run on small margins, mostly because they have high expenses for the cost of goods and for distribution and fulfillment. That is the heart of Amazon’s business, and it dominates their bottom line as well. But Amazon’s story is more complicated, because it’s actually two companies: the consumer business, and Amazon Web Services (providing cloud infrastructure as a service to customers). Amazon’s 10-K splits out some of the financial details for those two businesses, and the differences are striking:
Worldwide, Amazon’s operating margin on its consumer business is 2.18% — significantly worse than Walmart’s. It does slightly better in North America, but is losing money in the rest of the world (largely because it is still investing to expand its worldwide presence). Amazon Web Services, however, has a 26.2% operating margin — on par with its tech company peers, which all benefit from low cost of goods and low delivery costs. Fun fact: nearly 2/3 of Amazon’s 2019 profits came from AWS, though it only generated 1/8 of the company’s revenues.
What do we conclude from this? Amazon’s retail/consumer business looks just like its industry peers: a tiny operating margin, and not particularly profitable. Amazon’s AWS business is likewise on par with its industry peers: a more robust operating margin, more profitable, to some extent carrying the company at this point, but also nothing spectacular. There’s no magic to Amazon: it’s not outperforming its peers.
So here’s how Amazon breaks out its $2.374 billion “provision for income taxes” in 2019:
It claims a tax liability of $1.076 billion to the federal government; $162 million payable immediately, and $914 million deferred to future years. Another $284 million is in state income taxes, of which $8 million is deferred. And $1.014 is in foreign income taxes, including a deferred credit of $126 million.
So let’s take a moment to do some debunking here. The folks who claim that Amazon paid nothing in 2018 and/or got a $129 million rebate are cherry-picking that number out of the chart you see above: the number for its U.S. federal “current” liability. But this is accrual accounting, not cash flow accounting. Amazon accrued a total of $436 million in federal income tax liability in 2018. If we’re going to deduct the deferred portion from that, then we also need to add back in the deferred portions from 2017 and earlier that came due in 2018, because that’s what Amazon actually paid the IRS. Since Amazon’s tax returns are not public information we don’t know how much Amazon actually paid the IRS, but I can guarantee you that the IRS did not write a $129 million check to Amazon for 2018. Amazon does disclose in its 10-K that worldwide its combined cash income tax payments were $957 million in 2017, $1.2 billion in 2018, and $881 million in 2019.
Let’s break out the deferred taxes so we can understand where that’s coming from. It’s both assets (or tax credits) and liabilities.
There are a number of categories, including:
- Loss carryforwards: companies benefit, as individual taxpayers do, from being able to carry forward certain kinds of losses to future years. For example, if you have a portfolio of investments and some make money while others lose money, you pay capital gains tax on the net gain of the combined portfolio; but if it’s a net loss, then you can carry over the loss to the next year to offset future gains.
- Leases: Amazon has both credits and liabilities, since it leases out property that it owns but also leases property from others.
- Depreciation and amortization: also both assets and liabilities — liabilities mainly because of the Trump tax cut that allowed for accelerated depreciation of equipment: a tax credit in the short term that’s balanced out by a tax liability in the long term.
- Stock-based compensation. There are tax advantages to both employers and employees when a company pays its employees in stock instead of cash. The tax rules are very complicated, but the essence is that (remember we’re doing accrual accounting here) when an employer commits to giving an employee stock compensation that vests in future years, it must recognize the present-day cost of that stock, but if the stock price goes up later then the company gets a tax credit when it actually vests because the cost to deliver it is higher than it originally was.
The bottom line here: there is nothing fishy going on. All the rules are set by GAAP, the SEC and the IRS, and Amazon’s auditor ensures that the company follows all of those rules. Amazon’s discretion is in deciding how aggressively to use tax-advantaged approaches such as stock-based compensation, but at the end of the day the company will eventually pay all of the deferred taxes when the SEC and IRS say they must.
There’s one more thing for us to look at here: Amazon’s effective tax rate. Up to 2017, the statutory corporate tax rate was 35%; the Trump tax cut brought that down to 21% effective in 2018. Again, the company’s tax return is not public, so we don’t know exactly what its federal tax bill was (and it’s not independent of its foreign and state tax bills, since there are credits and penalties that cross those jurisdictions). Amazon does provide a breakout of the various impacts on its tax liability in its 10-K, starting from the fictional premise that it would have paid $2.935 billion in federal taxes if all of its income was domestic and taxed at a 21% rate.
Foreign earnings are an asset and liability: a liability for tax paid abroad and penalties for not repatriating earnings, but a U.S. credit for foreign taxes paid. The company also benefited from about $450 million of unspecified tax credits. But its largest tax savings was for stock-based compensation: $850 million. In the end, Amazon’s effective income tax rate worldwide, including state tax, is 16.99%. I included in the comparison chart earlier the rates for other tech and retail companies. Amazon’s tax rate is higher than Microsoft and Google, lower than Facebook, and lower than the profitable retail corporations.
It’s important to note that Amazon pays taxes other than income, including property, employment, excise, and B&O taxes — as well as sales taxes on the products and services that it purchases for its internal use. While details for most of these taxes are not available, according to city reports in 2018 Amazon was by far the highest property tax payer in Seattle — about $28.4 million.
Amazon recently published an article on its “About Amazon” site list some other facts and figures about its 2019 taxes — though without underlying government filings, there is no way to verify their claims.
What did we learn today?
- Amazon’s income taxes are complicated.
- There’s no magic to the finances of their company. They’re doing about the same as their competitors.
- Their biggest tax advantage within their control is their heavy use of stock-based compensation. But they certainly benefit from the Trump tax cut of the corporate tax rate from 35% to 21%.
- Amazon is definitely not paying zero income taxes.
- Politicians like to cherry-pick numbers out of earnings reports that support their preferred narrative.
Amazon UK pays 3% more in tax despite 35% rise in profits
Online retail giant says potentially higher corporation tax bill was offset by infrastructure investments
Amazon says it spent £690m building new warehouses, offices, data centres and other infrastructure, offsetting its big rise in profits and therefore its tax bill. Photograph: Daniel Leal-Olivas/AFP/Getty Images
Tue 8 Sep 2020 18.00 EDT
Amazon’s key UK business paid just 3% more tax last year when profits rose by more than a third as the online retailer benefited from the switch to home shopping.
The group’s warehouse and logistics operation, which employs more than two-thirds of its 30,000-plus UK workforce, Amazon UK Services, said its corporation tax contribution was £14.46m in 2019, up from £14.03m the year before. Pretax profits at the division soared 35% to nearly £102m as revenues rose by 29% to nearly £3bn, according to accounts about to be published by Companies House.
Amazon said its tax bill had been offset by government incentives related to its investment in infrastructure as it caters to soaring demand for home shopping and IT services in the UK.
The group, which is led by multibillionaire Jeff Bezos, said its entire UK operation increased revenues by more than a quarter to £13.7bn last year after expanding its online grocery operation, IT services and its Prime subscription offer, which includes video and music streaming.
Building new warehouses, offices, data centres and other infrastructure to service its expanding UK business cost Amazon £690m during the year.
Amazon and other tech firms such as Google and Facebook have been criticised over their tax contributions as online businesses have enjoyed a boom time during the coronavirus pandemic while traditional high street operators – from Marks & Spencer to Pizza Express – have been forced to close outlets and lay off thousands of workers.
In April, it emerged that Amazon received €294m (£258m) in tax credits across Europe last year, as revenues at the online retailer rose significantly to €32bn.
“Amazon is growing its market domination across the globe on the back of income that is largely untaxed – allowing it to unfairly undercut local businesses that take a more responsible approach,” said Paul Monaghan, head of the Fair Tax Mark campaign group. “Contrived financial arrangements lie at the heart of Amazon’s success.”
Amid anger from high street retailers, who say online sellers have an unfair advantage by not having to pay expensive business rates on physical premises in the UK, the government introduced a new digital services tax on revenues earned by social media services, search engines and online marketplaces, from 1 April this year.
On Tuesday, Amazon tried to fend off accusations of tax underpayment by issuing a statement which said its UK business as a whole paid out £293m in “direct taxes” – which includes employer’s National Insurance, business rates, stamp duty and corporation tax – up from £220m last year. At least half of those direct taxes are thought to be accounted for by national insurance and business rates.
“The UK has now become one of Amazon’s largest global hubs for talent and this year we announced plans to create 10,000 new jobs in the country by the end of 2020, ,” Amazon said in a statement.
“We pay all taxes required in the UK and every country where we operate, and focusing on one small piece does not provide a full picture of Amazon’s overall contribution to the UK. Corporation tax is based on profits, not revenues, and our profits have remained low given retail is a highly competitive, low-margin business and we continue to invest heavily.”
Amazon does not reveal profits or corporation tax payments for its entire UK operation, which include its retail business and IT services division as well as warehouses and logistics.
Sign up to the daily Business Today email
Amazon said in 2015 it would stop using controversial corporate structures that diverted sales and profits away from the UK.
But tax expert Richard Murphy said Amazon needed to provide more detail on its affairs before it was clear whether it was paying a fair amount of tax.
“If only they would give us basic information instead of a PR announcement with nothing meaningful in,” he said.
https://www.investopedia.com/insights/amazon-effect-us-economy/
The Amazon Effect on the U.S. Economy
By MRINALINI KRISHNA Updated Jan 14, 2021
TABLE OF CONTENTS
- The Retail Giant
- How Amazon Kills Inflation
- Jobs at Amazon
- Facilitator of Small Businesses
- Amazon as a Taxpayer
- Investing in Amazon
Amazon.com (AMZN) is everywhere. By disrupting the way people shop, Amazon has created economic ripple effects that go far beyond the customer’s wallet. Amazon, directly and indirectly, impacts inflation, jobs, and investment.
KEY TAKEAWAYS
- Amazon’s overhead costs are much lower than other retailers because there are no storefronts.
- Although company costs are low, Amazon has been accused of not paying workers a living wage.
- Amazon does pay tax, but not as much as one might think.
- Amazon has been a fantastic investment, but those returns are extremely unlikely to be duplicated in the future.
The Retail Giant
Amazon started with books and then added everything from engagement rings to jail cells for mobile phones until it became “the everything store.” Add the convenience of having it delivered promptly to your doorstep, and customers have rewarded Amazon with open wallets.
According to Digital Commerce 360, Amazon’s revenue from U.S. consumer’s web purchases amounted to 23.1% of U.S. online retail sales in the third quarter of 2020. In the first quarter of 2020, Amazon’s share of U.S. online retail spiked at 26%. In 2019, Amazon accounted for about 4% of U.S. retail sales. This huge increase can be attributed to the surge in online shopping as a result of the global pandemic due to the novel Covid-19 virus.12
If you consider the macro picture, consumers spending more is a good sign because it contributes to the GDP. That being said, consumer spending on Amazon is not significant enough to tip the GDP scale. However, it could be in the future.
How Amazon Kills Inflation
Amazon has disrupted traditional retail and accelerated the demise of struggling players. Without storefronts, the company’s overhead costs are significantly lower than other retailers. That gives Amazon the edge to undercut rivals on prices and operate on a thinner profit margin.
Some economy watchers are nervous about Amazon’s deflationary impact. Ideally, low unemployment is accompanied by wage growth, which in turn fuels inflation as companies pass on the costs to consumers. That is the logic of the Phillip’s curve, but Amazon has disrupted it as well.
Higher competition and lower prices limit the ability of companies to pass on any wage increases to consumers. Those worries were echoed in the wake of the Whole Foods acquisition in 2017. Remarks by Chicago Federal Reserve President Charles Evans were interpreted in that context.
Jobs at Amazon
By the end of 2020, Amazon employed over one million employees worldwide. In 2020 alone, the company added 400,000 jobs.3
That includes both full-time and part-time employees. Although one million seems like a large number, it is actually low by retail industry standards because Amazon does not have a significant storefront presence. A traditional store requires far more employees. For example, Walmart (WMT) employs approximately 2.2 million people worldwide.4
Amazon also engages a number of third-party contractors and companies for tasks like deliveries. Those people go door-to-door, dropping off Amazon packages. However, they are not employees of the company. Does that matter? Yes and no.
In a way, these are jobs for people. Therefore, some credit could go to Amazon for job creation. On the other hand, hiring contractual workers helps the company keep its costs in check. Some have criticized the company for harsh working conditions.
Another angle of the jobs conversation is how many jobs Amazon is eliminating. Consider how much the company is hurting other retailers, forcing them to shutter stores and cut back on costs. Job gains at Amazon may not mean anything for overall employment.
The company has come under fire from Sen. Bernie Sanders. He introduced a bill, Stop Bad Employers by Zeroing Out Subsidies, or the Stop BEZOS Act, in September 2018. He proposed levying taxes on large companies to the extent that their employees relied on public benefits. Sanders had attacked Amazon and Jeff Bezos on account of worker pay and worker safety conditions. On October 1, 2018, Amazon announced that it would raise its minimum wage to $15 per hour, much higher than the federal minimum wage of $7.25 per hour.5
Amazon’s quest for innovation and technology to achieve operational efficiency has people worried about the elimination of jobs. Those worries are not far-fetched considering that the company is testing its Amazon Go stores in several large U.S. cities.
The Facilitator of Small Businesses
Amazon’s logistics infrastructure doesn’t just help it ship to consumers all across the globe; it also aids another group of people: small businesses. Listing their products on Amazon helps them increase their customer reach, and the delivery essentially becomes Amazon’s headache.
“More than 20,000 small and medium-sized businesses worldwide on Amazon surpassed $1 million in sales in 2017,” the company said in a news release in 2018.6
As small businesses thrive, further job creation and spending are bound to happen. According to Amazon, 900,000 jobs were created outside of the company as a result of the Amazon Marketplace.
Amazon as a Taxpayer
Income Tax
Amazon does pay taxes, but it pays far less than most people believe that it should. A 2016 analysis by The New York Times and S&P Global Market Intelligence reveals that Amazon paid taxes at an average rate of 13% from 2007 to 2015, nearly half of the 26.9% average for S&P 500 companies.7 But it wasn’t alone. Other tech giants like Facebook, Alphabet, and Apple also paid taxes at a rate significantly lower than the average.
Amazon is structured to minimize corporate income taxes. The company reinvests much of what would be profits at other companies into expanding its business instead. While some joke that this policy makes Amazon the largest nonprofit organization in America, reinvestment leads to increased market share and capital gains. Amazon’s lower tax bill helps the company to expand, and expansion helps Amazon to reduce its taxes.
Sales Tax
Not having a physical presence or employees in many states also saved Amazon from having to collect sales tax. Sales tax is a complicated subject with rates and rules varying across states. The most straightforward explanation in this context is that tax laws in many states need the physical presence of an online retailer in the state to collect sales tax. Therefore, Amazon saved on tax by not having its own warehouses or employees in certain states.
The problem was not specific to Amazon, however, as it applied to any online retailer shipping goods across state lines. As time passed, Amazon started collecting sales tax on all products that were sold in or delivered to states that have such a tax. The following do not have sales tax:
- Alaska
- Delaware
- Oregon
- New Hampshire
- Montana
The sales tax issue gets even more complicated when it pertains to third-party sellers.
Investing in Amazon
Amazon became the second trillion-dollar company by market cap on September 4, 2018. It hit many milestones, including crossing the $2,000 mark for its share price. Amazon’s founder and CEO, Jeff Bezos, is frequently the wealthiest person in the world, depending on current market prices.
The multi-year run for Amazon shares has been phenomenal. The company made its stock market debut in 1997, and $100 invested then would have turned into six figures. Amazon has significantly outperformed the S&P 500 over the last several decades, but it has been a rocky road at times. In particular, Amazon lost more than 90% of its value when the dotcom bubble crashed.
Here, past returns are clearly not indicative of future results. Amazon’s strong performance during the 2020 bear market is a sign that the company is maturing. The thousandfold return available to early investors in Amazon simply cannot be repeated. Without hyperinflation, a trillion-dollar company will never be worth a quadrillion dollars because that is more than the combined value of every stock market in the world.
https://en.wikipedia.org/wiki/Amazon_tax
An older article but it explains the tactics Amazon uses when negotiating with individual states about sales tax collections, no discussion about corporate taxes or local taxes paid.
Amazon’s tax behaviors have been investigated in China, Germany, Poland, South Korea, France, Japan, Ireland, Singapore, Luxembourg, Italy, Spain, United Kingdom, multiple states in the United States, and Portugal.[1] According to a report released by Fair Tax Mark in 2019, Amazon is the worst offender of tax avoidance, having paid an 12% effective tax rate between 2010-2018, in contrast with 35% corporate tax rate in the US during the same period. Amazon countered that it had an 24% effective tax rate during the same period.[2]
Pennsylvania[edit]
The Pennsylvania Department of Revenue released a sales tax bulletin on December 1, 2011 outlining the Commonwealth’s interpretation of the Tax Reform Code of 1971 (TRC). The bulletin focuses on the Commonwealth’s definition of a nexus for the purposes of collecting sales tax, and points out that the TRC defines a business as “maintaining a place of business in this Commonwealth” if that business engages in an activity within the Commonwealth “either directly or through a subsidiary, representative, or agent, in connection with the lease, sale or delivery of tangible personal property.”[94]
While issuing the sales tax bulletin, Revenue Secretary Dan Meuser said that the Commonwealth would lose an estimated $380 million in 2011 due to the non-collection of online sales taxes.[95] At issue is the presence of four Amazon Fulfillment Centers located in Pennsylvania. Early in December 2011, Meuser said that if out-of-state sellers who have not previously collected state sales tax register and start collecting the taxes by February 1, 2012, then the Commonwealth would not seek payments of back taxes. After this deadline, Meuser said the Commonwealth would take enforcement action seeking back taxes.[96] On January 27, 2012, Meuser said that the new tax collection policy was being granted a one time extension until September 1, 2012 because the original “compliance deadline [was] impractical from operational and technical standpoints.”[97] Amazon began collecting sales tax in the state beginning on that September 1 deadline. Currently, Amazon just collects Pennsylvania’s 6% sales tax, but does not collect any local sales taxes.[98
explains why what is estimated as profit is not what is actually paid on the tax return
Amazon
Although the Seattle-based retail and cloud-computing services giant is famous for its aggressive tax-reducing strategies — it reported no federal income tax in 2017 and 2018, despite billions of dollars in profits for both years — the company reported a relatively large 2020 tax bill, thanks in part to a large pandemic-related increase in profit over 2019.
In 2020, Amazon reported $1.8 billion in federal income taxes (and around $600 million in state income taxes) on $20.2 billion in U.S. income.
Using the ITEP formula, Amazon’s effective U.S. income tax rate for 2020 was 9.4%.
Amazon’s all-in effective tax rate for 2020 was 11.8%, based on figures in its SEC filings.
Like all corporate taxpayers, Amazon benefits from an assortment of tax deductions. An important one for Amazon and other tech firms lets them deduct some of the value of “restricted stock units,” or company shares, that are included as part of employee compensation — much as companies can deduct the expense of regular salaries. (Employees receiving restricted stock units pay income tax on them.)
“Amazon’s taxes, which are publicly reported, reflect our continued investments, employee compensation, and current U.S. tax laws,” a spokesperson said in a statement.
Amazon had to pay federal income taxes for the first time since 2016 — here’s how much
Published Tue, Feb 4 20203:19 PM EST
hen Amazon CEO Jeff Bezos tweeted a picture of himself with singer and rapper Lizzo at the Super Bowl in Miami, saying he was “100% Lizzo’s biggest fan,” the response from the Twitter-sphere was more about his 1% status: Pay taxes, Twitter users said.
But for the first time since 2016, Amazon’s critics won’t be able to point to the tech giant’s nonexistent federal tax bill.
That’s because Amazon actually owed money to the federal government in 2019. After two straight years of paying $0 in U.S. federal income tax, Amazon was on the hook for a $162 million bill in 2019, the company said in an SEC filing on Thursday.
Of course, $162 million is still just a fraction of the $13.9 billion in pre-tax income Amazon reported for 2019 — roughly 1.2%, in fact. The federal corporate tax rate is 21%, but as in the past, Amazon likely employed various tax credits and deductions to reduce its federal tax bill. Amazon also reported $280.5 billion in total revenue in 2019.
Amazon has been the subject of much criticism over the fact that the company’s final federal tax burden has been particularly lacking in recent years. The company also came under fire for seeking huge tax incentives worth billions of dollars as part of its search for a second headquarters, or “HQ2,” in 2018.
In 2018, Amazon posted income of more than $11 billion, but the company paid $0 in federal taxes. In fact, thanks to tax credits and deductions, Amazon actually received a federal tax refund of $129 million. That was a year after Amazon received a $137 million refund from the federal government for 2017.
President Donald Trump is a frequent critic of Amazon for paying “little or no taxes to state and local governments,” though the Trump Administration’s 2017 Tax Cuts and Jobs Act helped to lower the statutory corporate tax rate.
In February 2019, Senator Bernie Sanders pointed out in a tweet that any one of the company’s roughly 150 million Amazon Prime members would have paid more for that program’s annual fee ($119) than Amazon paid in federal taxes for 2018 or 2017.
In a blog post on Thursday, Amazon touted the fact that the company had “over $1 billion in federal income tax expense” in 2019. However, that total includes the $162 million federal tax bill, as well as another $914 million federal tax bill that the company says has been deferred until a later date. (Federal tax laws companies to delay tax payments on certain income, including some foreign earnings and long-term investments in items such as equipment or machinery.)
Amazon also reported $276 million in state tax payments in 2019, as well as an international tax bill of more than $1.1 billion, according to Thursday’s SEC filing. And, the company notes in its blog post that Amazon also paid roughly $2.4 billion “in payroll taxes and customs duties” in 2019.
However, paying something like payroll tax is hardly something to boast about, according to Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy, or ITEP, a nonpartisan and nonprofit tax policy think tank. In a blog post responding to Amazon’s release of its 2019 tax bill, Gardner notes that “economists agree that payroll taxes are ultimately paid by employees in the form of reduced compensation.”
Gardner also argues that, despite Amazon reporting its first positive federal income tax bill since 2016, the company was still on the hook for a small fraction of the corporate tax rate in 2019. “The clear fact remains that the federal income tax system still can hardly lay a glove on one of the biggest and most profitable corporations in the world,” Gardner writes in his blog post.
When reached for comment by CNBC Make It, an Amazon spokesperson declined to comment on the company’s 2019 tax bill beyond what is in the company’s recent blog post. “We follow all applicable federal and state tax laws, and our U.S. taxes are a reflection of our continued investments, compensation of our employees, and the current tax rules,” the company writes in that post.
Amazon CEO Jeff Bezos and his massive wealth — he’s the world’s richest person with an estimated net worth of $124 billion, according to Bloomberg — has also become a talking point for Democratic presidential candidates like Sanders and Elizabeth Warren who advocate for some form of wealth tax. While Bezos has not disclosed his personal tax bill, the billionaire would pay roughly $6 billion a year under Warren’s proposed wealth tax, and $9 billion under Sanders’ proposal.
Amazon Has Record-Breaking Profits in 2020, Avoids $2.3 Billion in Federal Income Taxes
February 3, 2021
Amazon’s winning streak in its battle against the U.S. tax system remains intact. This week the retail giant announced record-breaking sales and income for 2020, and an effective federal income tax rate of just 9.4 percent, less than half the statutory corporate tax of 21 percent.
By any measure, Amazon’s growth in the pandemic year has been remarkable. Its worldwide pretax income for 2020 was $24 billion, up 73 percent from the $14 billion it enjoyed in the last pre-pandemic year. Its sales were up 38 percent over the prior year—during a pandemic. The company’s U.S. income in 2020 was $20 billion. If Amazon had paid 21 percent of its profits in federal income tax, that would have come to $4.1 billion. The company’s reported current tax of $1.8 billion was less than half that, meaning last year Amazon avoided $2.3 billion in taxes.
Over the first three years of the Trump-GOP tax law, which dropped the statutory corporate tax rate to 21 percent, Amazon paid an effective federal income tax rate of just 4.3 percent on U.S. income. From 2018 through 2020, Amazon enjoyed tax subsidies of $7.2 billion. This is the difference between what the company would have paid if subject to the full 21 percent rate and what it actually paid.
The mechanisms the company is using to drop its effective tax rate are mostly unchanged: the company saved $1.8 billion using tax breaks for stock options, and it saved $639 million using various tax credits.
Over the 2018-2020 period, Amazon also enjoyed depreciation breaks, although they had no net effect on the company’s tax bill in 2020. Depreciation breaks allow a company to deduct the costs of investments in equipment much more quickly than the equipment wears out. Proponents in Congress claim this encourages investment and helps the economy overall, but more likely it rewards companies making investments they would have made anyway.
The effects of depreciation breaks are complex. Part of the effect is to move tax payments further into the future, even though the net effect in the long run reduces the company’s tax liability. This makes it important to look at a company like Amazon over several years—and from this perspective, it’s clear that the nation’s tax code barely lays a glove on Amazon.
Amazon’s tax avoidance is consistent. Over the past three years, Amazon paid an effective federal income tax rate of just 4.3 percent on U.S. income. Over the past 10 years, Amazon’s effective federal tax rate on $57 billion of U.S. pretax income was just 4.7 percent, especially remarkable given that the legal rate was 35 percent for most of this period.
For any other company, $1.8 billion of current federal income taxes would be interpreted as a sign the company’s tax accountants had taken the year off. But in Amazon’s case, the $1.8 billion the company paid is overshadowed by the $2.3 billion it did not pay last year. These unpaid taxes are especially troubling because Amazon’s pandemic experience is utterly different from the existential threats facing entire industries. Far more typical of the 2020 economy is companies reporting cratered sales and zero profits. In this setting, it’s vital that our tax system should perform as advertised, and when Amazon shelters more than half its profits from tax, our tax system is clearly in need of reform.
https://www.cbsnews.com/news/amazon-taxes-1-2-percent-13-billion-2019/
Amazon paid a tax rate of just 1.2% last year, versus 14% for average Americans
BY STEPHEN GANDEL FEBRUARY 6, 2020
Amazon told investors it paid a federal income tax rate of 1.2% last year — that’s about 13 percentage points lower than the average American’s tax rate paid in 2019. Even more striking: That was a three-year high for Amazon.
Last year was the first time the ecommerce company reported paying taxes since 2016, according to recent financial statements filed with the Securities and Exchange Commission. Despite making billions in profits, Amazon showed federal tax refunds in 2017 and 2018. All told, the company reported $30.1 billion in profits in the U.S. over the past three years. It also reported paying a negative $104 million to the IRS — translation: Amazon received a nine-figure refund on its sizable earnings.
Amazon isn’t alone, of course. Hundreds of U.S. companies now pay tax rates that are lower than those many Americans pay. A study late last year from the liberal Institute on Taxation and Economic Policy found that Fortune 500 companies pay an average tax rate of 11.3%.
The Republican tax cuts passed in late 2017 tax lowered the nominal corporate income rate to 21%, from a high of 35%. But tax credits and other breaks allow companies to pay lower rates than that.
Still, Amazon’s 1.2% is low even for corporate America. The company defended its tax record in a blog post last week, saying it had $1 billion in “federal tax income expense” in 2019. Amazon also said that it paid $2.4 billion in other federal taxes, including employment taxes, and $1.6 billion in state and local taxes. It collected $9 billion in sales taxes on merchandise sold on its website, although most of that is money collected from customers and not paid out by Amazon itself.
Amazon also notes that tax credits for spending on research and development are main source of its tax breaks. Last year, the company abandoned a plan to open a new corporate office in New York City after the plan was criticized for handing out generous tax exemptions in exchange for the internet giant relocating jobs to the Big Apple.
“We follow all applicable federal and state tax laws,” Amazon wrote in the blog post. Amazon did not respond to a request for comment from CBS MoneyWatch.
It’s not clear what Amazon means by federal tax income “expense.” That could mean that it paid $1 billion to Uncle Sam last year. Companies, like individuals, are not required to disclose their tax returns. Businesses also must file financial statements. But those filings follow a different set of accounting rules than what is required by the IRS. As a result, corporate tax expenses often differ from what the companies actually end up paying.
Senator Elizabeth Warren has proposed forcing companies to pay a tax based on their publicly reported profits, and not just what they report privately to the IRS.
Amazon’s financial filings included an expense of $1.1 billion for federal U.S. taxes last year. But the filing also shows that the company only paid $162 million of that last year. What’s more, it does not say what year those tax payments are for. The rest of its tax expense was labeled as deferred, and the company did not say when they would be paid.
https://www.politifact.com/article/2020/feb/08/fact-checking-common-democratic-talking-point-abou/
Fact-checking the Democratic claim that Amazon doesn’t pay taxes
Miriam Valverde February 7, 2020
Candidates vying for the Democratic presidential nomination are making such an example of Amazon during campaign stops that the mega-company is the subject of a now-popular call-and-response refrain.
“How much did Amazon pay in federal taxes last year?” Andrew Yang asked supporters at a community college in Muscatine, Iowa, in January.
“Zero,” the audience replied.
“Zero — that is your math,” Yang, a businessman, said.
Sen. Elizabeth Warren in January had a related Amazon question for her Iowa supporters: “Anybody remember how much they paid in taxes?”
“Zero,” the crowd shouted back.
Both Yang and Warren made similar remarks early February in New Hampshire as they rallied their supporters about a week before the state’s Feb. 11 primary.
Is it true that despite making billions of dollars, Amazon pays zero dollars in federal income tax?
Short answer: Amazon’s tax returns are private, so we don’t know for sure what Amazon pays in federal taxes. But Amazon’s estimates on its annual 10-K filings with the U.S. Securities and Exchange Commission are the closest information we have on this matter. They show mixed results for the past three years: no federal income tax payments for 2017 and 2018, but yes on payments for 2019.
“Amazon is off the hook in the narrow sense that you can no longer assert they are not paying federal income tax now,” said Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy. Still, Amazon’s financials indicate that in 2019 its effective tax rate was 1.2%, far below the 21% statutory corporate tax rate, he said.
Here’s a more nuanced picture of Amazon’s taxes.
A glance at Amazon’s 10-K report
A 10-K statement provides a financial overview of a company based on its expectations, estimates, and projections.
Amazon’s latest filing says that the company’s U.S. income before taxes in 2017, 2018, and 2019 were, respectively, $5.6 billion, about $11.2 billion, and close to $13.3 billion.
Amazon estimated a federal income tax bill of negative $137 million in 2017 and negative $129 million in 2018. That could be read as Amazon expecting refunds for those amounts, and not paying federal taxes those years, Gardner said.
For 2019, Amazon estimated owing $162 million in income tax to the federal U.S. government.
Amazon’s regulatory filing also says that the company paid $957 million, $1.2 billion, and $881 million in taxes worldwide in 2017, 2018, and 2019, respectively. But the filing does not identify to which governments that money was paid. It also doesn’t say whether the entirety of the amount paid in a given year was for tax owed that specific year (for instance, it could be that money owed from previous years was paid in 2017).
From 2017 through 2019, Amazon estimated paying a total $809 million in U.S. state taxes and a total $2.4 billion in international taxes.
“We follow all applicable federal and state tax laws, and our U.S. taxes are a reflection of our continued investments, compensation of our employees, and the current tax rules,” Amazon said in a Jan. 31 blog post.
In its blog post, Amazon said its 2019 U.S. taxes included “over $1 billion in federal income tax expense.” That $1 billion figure represents the company’s tax obligation for 2019, but doesn’t mean it’s paid that entire amount; it includes a $914 million tax liability that it is deferring, or expecting to pay in future years.
How did Amazon get a negative tax liability in 2017 and 2018?
Stock-based compensation and tax credits help Amazon reduce its taxable income, experts told PolitiFact in 2018 for a related fact-check.
Companies issue stocks as a form of compensation to employees. And stocks are a common incentive for executives to make more money for the company. When stocks are offered as compensation, they count as a cost, which in turn reduces the company’s taxable income.
Companies in their annual reports aren’t required to specify which tax credits they claim, but experts say Amazon likely uses tax write-offs for research and development, domestic production, and equipment depreciation.
Net operating losses and tax credit carryforwards may create a negative tax liability, said Garrett Watson, an expert on federal and state taxes at the nonprofit Tax Foundation.
“What this means is Amazon may use the losses and credits in a future tax year to offset future positive tax liability,” Watson said. “This does not mean that Amazon would be getting a refund like an individual may if they remit more in tax than they owe.”
The Institute on Taxation and Economic Policy in a December 2019 report estimated that 91 companies that collectively made $106 billion in profit in 2018 paid no federal taxes on their income. That list included Amazon.
There is no implication that Amazon has done anything illegal, tax experts say.
Amazon also says it adheres to a tax code written by Congress “that incentivizes the type of job creation, capital investment, development of technology, and employee ownership that Amazon does because these are critical drivers of a prosperous economy.”
The tools that Amazon uses to reduce its federal income tax liability, Gardner said, “are 100% legal, ratified and approved by Congress.”
Top of Form
Bottom of Form
Our Sources
Amazon Investor Relations, SEC filings, 2019 SEC filing
Phone interview, Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy, Jan. 24, 2020, Feb. 7, 2020
Email interview, Garrett Watson, an expert on federal and state taxes at the nonprofit Tax Foundation, Jan. 28, 2020
PolitiFact, Bernie Sanders says Amazon paid no federal income tax in 2017. He’s right, May 3, 2018
Jeff Bezos spent more on this house in Beverly Hills than Amazon has paid so far in federal corporate income tax for 2019
Published: Feb. 18, 2020 at 8:41 a.m. ET
By Andrew Keshner and Jacob Passy
The Amazon founder has purchased the famed Warner Estate from entertainment mogul David Geffen for a record-breaking $165 million
Jeff Bezos is reportedly buying a nine-acre Beverly Hills estate for $165 million.
Amazon CEO Jeff Bezos is reportedly paying $165 million for a palatial Beverly Hills mansion, and, according to SEC filings, with that sum the Amazon AMZN, -0.45% founder could have footed the entire 2019 federal tax bill his company is planning to pay this year. He’d have $3 million left over.
Bezos purchased the Warner Estate, originally designed in the 1930s for the Warner Bros. T, -0.77% president Jack Warner, from music mogul David Geffen, the Wall Street Journal reported, citing sources described as familiar with the transaction.
That surpasses the previous highest price paid for a home in California. Last year, media executive Lachlan Murdoch spent $150 million on Chartwell, the Bel-Air mansion famous from the television series “The Beverly Hillbillies.” Lachlan Murdoch is the son of media mogul Rupert Murdoch and co-chairman of News Corp, which owns Dow Jones & Co., publisher of MarketWatch and the Wall Street Journal. (A spokesperson for News Corp declined to comment.)
Amazon owes more than $1 billion in federal income taxes for 2019, according to SEC filings submitted last month. The online retail pioneer so far has paid $162 million on its 2019 bill, with the remaining $914 million owed in 2019 federal income taxes deferred, the filing noted.
An Amazon representative declined to comment on Bezos’s property purchase or the company’s tax rates but referred to a previous company statement on Amazon’s tax bill.
“We follow all applicable federal and state tax laws, and our U.S. taxes are a reflection of our continued investments, compensation of our employees, and the current tax rules,” the company said in a Jan. 31 blog post.
Amazon listed a “summary” of its 2019 U.S. taxes as including $2.4 billion in other federal taxes, including payroll taxes and customs duties, and more than $1.6 billion in state and local taxes. The company also noted that it remitted nearly $9 billion in sales and use taxes to states and localities in accordance with applicable law.
Deferred taxes represent a forecast of the taxes companies will need to pay. There’s “no guarantee” companies ultimately make tax payments equal to their deferred figures, said Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy.
Amazon’s deferred taxes “should eventually get paid, but companies can also defer this for a long time,” said Andrew Schmidt, an accounting professor at North Carolina State University. “Deferred taxes arise because there are differences in the way companies account for assets, liabilities, revenues and expenses for financial reporting purposes compared to tax purposes.”
Bezos’s property-tax rate appears close to Amazon’s effective federal tax rate
In California, property-tax rates are calculated based on a home’s most recent selling price, leading to the inference that Bezos could pay around over $2 million in property taxes this year, as compared with the national average of roughly $3,500, based on calculations by real-estate data provider Attom Data Solutions.
That’s significantly more than the previous owner, Geffen, who reportedly would have paid more than $705,000 in annual property taxes on the Warner Estate, based on an assessed value of the property when he purchased it, according to data from the real-estate website Zillow ZG, +4.61% ZG, +4.61%. Geffen was not immediately available for comment, and a lawyer for Geffen did not respond to a request for comment.
What homeowners ultimately pay in real-estate taxes depends on rates levied by a number of local authorities. Nationwide, the average property-tax rate hovers at around 1.2%. In California, property taxes are pegged at 1% of a home’s assessed value, and a property-tax bill cannot increase more than 2% from one year to the next.
Stephen Whitmore, a spokesman for the Los Angeles County assessor’s office, said property owners in the county might expect to pay roughly another 0.25% of a property’s valuation for various municipal expenses, like improving water systems, area schools and fire departments, he said.
Like California property-tax rate, Amazon’s corporate tax rate is also in the low single digits, according to Gardner, from the Institute on Taxation and Economic Policy. The Trump administration’s 2017 tax overhaul cut the corporate tax rate to 21% from a prior 35% rate.
But Amazon’s effective federal tax rate last year was 1.2%, based on what the company has paid thus far, said Gardner. He arrived at the number by dividing the company’s more than $13 billion in pretax domestic income by the $162 million it’s planning to spend on federal income taxes this year. If factoring in deferred taxes, the effective federal tax rate jumps to 8%.
Does Amazon Really Pay No Taxes? Here’s the Complicated Answer
Amazon has paid income taxes, albeit at a low rate—and likely has been helped by deductions and incentives related to investment, research and employee compensation
Need subscription
EDITORS’ PICK|Feb 22, 2019,07:16pm EST
Why Amazon Pays No Corporate Taxes
This is primarily a justification for the Amazon tax avoidance but needs to be understood to appreciate how the company exaggerates these deduction to minimize and hide revenue, especially in R&D.
Amazon’s recent decision to pull HQ2 out of New York City has reignited an older debate about why the company pays “no taxes.” One graphic, for example, produced by data journalist Mona Chalabi and subsequently reshared by House member Alexandria Ocasio-Cortez among many others, shows two superimposed graphs comparing Amazon’s quickly growing profit next to its negligible taxes over the last nine years.
The comparison is striking. And also misleading. As one of today’s most influential economists, Tyler Cowen, wrote on his site Marginal Revolution, “When it comes to the discussion surrounding Amazon and taxes, I can only sigh….”
What Is The Purpose Of A Tax?
First, a quick look at Amazon’s financial statements shows 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.
Amazon pays plenty in terms of payroll taxes and also state and local taxes. Nor should you forget the taxes paid by Amazon’s employees on their wages. Not only is that direct revenue to various levels of government, but the incidence of those taxes falls somewhat on Amazon, which now must pay higher wages to offset the tax burden faced by their employees,” Cowen adds.
It is true that in the last two years, Amazon did not pay federal taxes. (It’s odd to think I paid more federal tax last year than Amazon did.) But before yelling partiality, it is worth understanding why. A more thorough examination of the underlying economics demonstrates that only looking at Amazon’s profits versus corporate taxes is too simplistic of a model.
Instead, a good place to start is understanding economic incentives. Incentives, in laymen’s terms, sound like free money. Incentives, to an economist, operate as a lever to generate a better result which offset the cost. Taxes are one such lever. But taxes are too often interpreted only by their first-order effect of generating revenue, rather than the second-order effect of stimulating economic activity.
If you look at the Internal Revenue Code, as one CPA cites, less than 1% of it is dedicated to revenue generation. The majority, in fact, is on tax deductions. “There are only about 30 pages in the Code that actually raise revenue…[T]here are about 6,000 pages that tell you how to reduce taxes through tax deductions, tax credits and other incentives.”
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’s Tax Breaks And The Underlying Incentives
There are three main drivers of Amazon’s tax breaks:
- Investment in Research & Development. Amazon invests heavily in research and development and therefore benefits from the tax credit. In 2017, as Recode stated, Amazon topped the list of U.S. companies in R&D spend, at $22.6 billion. The next closest was Alphabet at $16.6 billion. Many of Amazon’s innovations have been birthed from this investment.
- Investment in Property, Plant, and Equipment. Amazon’s investment in property, plant, and equipment also makes it eligible for tax credits. Cities can benefit from Amazon’s investment in real estate and job creation (benefits New York City could have enjoyed). Amazon’s PPE expenditure has steadily increased over the last five years, netting to approximately $60 billion as of the end of last year.
- Employee Stock Compensation. A move away from cash compensation to stock-based compensation for employees is the third driver of its tax breaks. Tax deductions increase as the stock increases. While this can certainly create adverse incentives, it is important to assess the benefits it creates relative to the cost. While such a tax policy can introduce misaligned management incentives, it also generates incentives for management to drive the best possible return for investors.
Amazon largely pays no corporate tax precisely because it reinvests those profits into its operations. Under a scenario where Amazon had no corporate tax breaks, it would disincentive the company from reinvesting and thus creating greater opportunity for the businesses and cities in which it operates.
Raising a pitchfork to fight Amazon’s corporate tax breaks is fine if the argument is rooted in strong economic reasoning. The risk is that too often the data is pulled out of context, and inaccurate storylines circling that data gain momentum and undeservedly accelerate.
The building impetus to tear down existing economic structures without a strong grounding in why the structures even exist could land us in a worse position. The question to address is not why Amazon pays no taxes, but under what tax structure could we be better off?
this is insight on what the HQ2 contest had states giving away
HQ2 Employees Might Unwittingly Pay Their Taxes to Amazon
Some cities vying for HQ2 offer a way for companies like Amazon to automatically recoup a percentage of employees’ salaries from…the employees.
Greg LeRoy
June 15, 2018, 12:44 PM EDT
An Amazon worker in Phoenix, Arizona, wheels a dolly with boxes. Ross D. Franklin/AP
There’s a very real chance that when Amazon.com, Inc. starts hiring employees for its second headquarters, or HQ2, those employees’ state personal income taxes won’t all go to the state treasury. Billions of dollars in taxes may instead be diverted to the company, of which CEO Jeff Bezos owns 17 percent.
There are 18 states that offer this tax-diversion shell game to companies: If Amazon chooses to locate HQ2 in one of the nine finalist cities in these states, the employees will never be notified of their participation. Their pay stubs won’t show where their tax deductions have actually gone. They’ll never be asked if they consent or wish to opt out. Nor will the state’s school boards, universities or transportation agencies have any say: Their resources will be greatly eroded, yet they’ll still be expected to deliver a highly skilled workforce on time.
It’s a glaring example of how extreme and hypocritical corporate welfare has become in reinforcing inequality. Amazon is headed by the world’s richest man, but pays a median wage of just $28,446. Yet it may get such huge amounts of these personal income tax diversions that it will enjoy a negative income tax rate for many years in the state that “wins” the deal.
Of course, because of the traditional “economic development incentives” state and cities give out, Amazon will likely pay few if any of its corporate property taxes or sales taxes, either. Many states automatically exempt a project this size from sales taxes on building materials, machinery, and equipment. If they don’t grant that automatically, Amazon will no doubt demand it. At the local level, politicians will be under terrific pressure to abate property taxes to mirror the state’s generosity with corporate income tax credits that will reduce or eliminate its income tax bill for many years. The personal income tax diversions described here are on top of those.
We at Good Jobs First revealed this insidious giveaway in 2012 when we named 2,700 companies in 16 states that had been awarded big chunks of their employees’ state payroll taxes. In “Paying Taxes to the Boss,” we explained three different ways the money can flow, with the net effect always the same.
Amazon did not impose non-disclosure agreements on the first-round proposals for HQ2, yet we still know far too little about all but two of the tax-break offers made by Amazon’s 20 finalist locations. But even with such poor disclosure about the specifics of each package, it’s already evident that HQ2 employees could effectively pay lots of their income taxes to Bezos and other Amazon shareholders.
For example, Maryland has offered the biggest known HQ2 subsidy package, totaling $8.5 billion, for locating in Montgomery County. Most of it—$4.9 billion—would be payments to Amazon of 5.75 percent of every dollar paid in salaries. That’s the state’s top personal income tax rate.
Bottom of Form
If Amazon chooses Chicago, a reported $1.32 billion of Chicago’s offer would derive from state personal income taxes. Never mind that the revenue is desperately needed by the most financially distressed state in the nation. It’s surprising that the Prairie State would gamble on a retail headquarters deal: It has given Sears two HQ packages totaling $517 million, and those haven’t stopped that chain’s death spiral.
If Columbus is the choice, Amazon could get two kinds of personal income tax diversions: An Ohio program could entitle Amazon to three-fourths of its HQ2 employees’ payroll taxes for 15 years, at an undisclosed price tag; and a local income tax diversion could total $400 million.
North Carolina may soon open its floodgates even wider as Amazon considers Raleigh: The state is now considering legislation that would divert some personal income taxes to employers for 40 years. For Atlanta, Georgia, another finalist, the state has two tax credits derived from payroll withholdings; one accountant estimated between $1 and $2 billion could be lost to the state treasury.
In Colorado where Denver—also a contender—is, workers pay a share of their personal income taxes to employers. The same would be true if HQ2 goes to Indianapolis, Indiana. But both of those bids are hidden from taxpayers.
Pennsylvania’s state bid, which would apply to either Pittsburgh or Philadelphia—both are still in the hunt—has been estimated at $1 billion in incentives. But it’s not yet known whether that sum includes the offer of a personal income tax diversion. Could this be why both cities refuse to disclose their first-round bids, despite rulings by the Pennsylvania Office of Open Records that they be released to the news media?
Taxpayers in all 238 localities that bid on HQ2 deserve to see every single penny. We have more important things to do with the money, especially because many states have enacted unwise tax cuts. Critical investments that benefit all employers, such as education and infrastructure, have not recovered to pre-recession levels.
We can’t afford to mortgage our futures for one corporate headquarters; it’s far too many eggs in one basket. As a Maryland taxpayer, I want all of that $4.9 billion going for schools, healthcare, safety, transit and infrastructure—not lining Jeff Bezos’ pockets.
https://newrepublic.com/article/146540/amazon-thriving-thanks-taxpayer-dollars
January 9, 2018
Amazon Is Thriving Thanks to Taxpayer Dollars
The tech giant has received more than $1 billion in tax breaks. The government is also funding food stamps for many of its workers.
DAVID RYDER/GETTY IMAGES
As Amazon builds up its distribution network, it’s hit on a trick long practiced by the likes of Walmart: using the federal government to help pay its workers. A new study by Policy Matters Ohio found that more than 700 Amazon employees receive food stamps, or more than 10 percent of the tech giant’s 6,000-strong workforce in the state. Some of those recipients may be part-time help, but the fact that they need federal aid to survive suggests that they would be happy to work more. “Why is this giant, successful company offering such limited pay and hours of work that many of its workers need help buying food?” asked Zach Schiller, research director at Policy Matters.
Amazon ranks nineteenth among Ohio businesses in number of employees on food stamps, behind Walmart, McDonald’s, and Kroger. But Amazon is only the fifty-third-largest employer in Ohio, suggesting a higher rate of employees on food stamps than its counterparts. More important, Amazon has obtained at least $123 million in state tax incentives to place warehouse and data center locations in Ohio. This reflects a perverse form of double-dipping: Amazon gets a bounty to create jobs in Ohio, and then a good chunk of the jobs are so low-paying that workers have to seek federal assistance, providing a second subsidy for the e-commerce giant.
Cities and states are offering Amazon eye-popping tax subsidies to win its second headquarters. But smaller, existing tax incentives have already made Amazon the leading recipient of so-called “economic development” subsidies in the country. According to Good Jobs First, a non-profit that tracks state tax breaks, since 2000 Amazon has received $1.115 billion in 129 communities in the U.S., rocketing past the previous leader in this category: Walmart.
This was the result of a concerted strategy by Amazon. In 2012, the company hired Michael Grella, a specialist in economic development tax credits. The company created an entire team just to seek out these subsidies, in a continuation of its strategy to work the tax code to its advantage—first by not collecting sales tax and offering an effective discount on every product, and more recently to lower the cost of building new shipping facilities.
If a city or state shells out millions of dollars to attract Amazon, the least it can do is ensure that the resulting jobs lift people out of poverty. When Ohio gave Amazon $17 million for two distribution centers in Licking County, Amazon promised to hire at least 2,000 employees with a payroll of $60 million. That comes out to $30,000 per worker, barely above the $26,208 poverty line. Amazon subsequently hired many more employees than that baseline, but payroll has remained so low that a healthy number have to turn to food stamps, as the Policy Matters Ohio report shows.
The famously grueling jobs in Amazon warehouses have also created strains on local services. Bloomberg reported in October that emergency responders visit the Amazon warehouse in Licking County at least once a day to attend to an injured worker. Local residents have to fund those forays because Amazon pays no property tax in Licking County under their subsidy deal. Voters approved a $6.5 million property tax levy in November to keep the Fire Department operational.
The largesse bestowed on Amazon in Ohio is incredible. A deal for three Amazon data centers netted Amazon a 15-year exemption on property and sales taxes worth $77 million, a $4 million offset to payroll costs, and $1.4 million in cash, and only committed the company to 1,000 full-time jobs. A sorting facility in Twinsburg, Ohio, would only have ten full-time jobs, with the rest part-time or seasonal. No matter: Twinsburg gave a partial property tax exemption worth $600,000. Another warehouse opening in Euclid, outside of Cleveland, has yet to yield details on what the state kicked in.
Most of these deals go through a privatized economic development agency called JobsOhio, which doesn’t require as much transparency as a public agency about what taxpayers are getting for their money. JobsOhio continues to defend the Amazon deals as good for the state, claiming that full-time warehouse workers receive 30 percent higher compensation than the national retail worker average. That figure doesn’t bear out compared to independent data reports from the Bureau of Labor Statistics, which puts Amazon wages 15 percent below the average wage in 11 metro areas, at only $11.96 an hour, a number roughly equivalent to the average retail wage.
Amazon CEO Jeff Bezos has a net worth of about $100 billion. Take that down to $99.5 billion and nobody working at any Amazon facility in America would need assistance to eat. But this is as much a problem with state and local governments who feel the need to give fantastically wealthy corporation incentives to build facilities that are critical to its business model.
Amazon’s model of two-day or even same-day delivery of tens of thousands of products through its Prime service demands a large footprint across the country. If Amazon wants to live up to its shipping promises, they need to build warehouses virtually everywhere, beyond the roughly 140 fulfillment centers in operation today. “It requires at least one and sometimes multiple facilities in or near every major consumer market in the U.S.,” notes Good Jobs First in a report on Amazon subsidies.
So it’s not clear why any state or local government would pay Amazon to build something it already must build. Communities seeking jobs may feel the need to compete with neighbors to attract an Amazon warehouse. But to be as convenient as the neighborhood store, Amazon has to physically exist in the neighborhood. Any city with decent roads and a lot of Prime members will eventually become a candidate for a warehouse; they don’t need to top it off with a corporate handout.
If taxpayer dollars do keep flowing, governments have a duty to impose stringent standards for the number of jobs and the level of salaries and benefits that will result—and threaten to claw back the subsidies if those parameters are not met.
Economic development incentives don’t create jobs as much as they shift them around, pitting communities against one another for who can pony up the most corporate welfare. Companies rely on desperation in these communities, knowing they can win valuable incentives just by dangling a few low-wage jobs. But why aren’t they demanding that companies, in exchange for job-creation tax incentives, pay those new workers a livable wage?