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How Amazon Paid $0 Federal Income Tax in 2018

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12:13   |   Apr 03, 2019

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How Amazon Paid $0 Federal Income Tax in 2018
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  • Amazon is a very sophisticated tax player.
  • Amazon is very much the canary in the coal mine.
  • They're really doing what a lot of politicians wish more companies would do.
  • Amazon is a huge company, but you know just how huge it really is.
  • We start with amazing Amazon somewhere CEO Jeff Bezos is smiling.
  • It's one of only two U.S.
  • companies to ever reach a trillion dollar valuation.
  • No one in history has become as rich as quickly.
  • It's made Jeff Bezos the richest man in the world.
  • That is one hundred million prime subscribers globally.
  • And if you put those prime subscribers in one country, it would be the 14th
  • largest on the planet.
  • The planet.
  • But that massive company paid no federal income tax on more than 11 billion
  • in profits in 2018.
  • And somehow they actually got a $129 million tax rebate.
  • So how do they do it?
  • First, there is the tax bill.
  • President Trump's signature tax legislation lowered the corporate tax rate
  • from 35 to 21 percent.
  • Corporations are literally going wild over this.
  • That immediately slashed Amazon's potential tax burden.
  • Then there's Amazon savvy use of revenue.
  • Amazon plows large portions of revenue back into itself to cultivate long term growth.
  • Amazon has actually been selfs funding for several years now.
  • The company challenged significant free cash flow.
  • One of the things I like about Amazon is it's a company that doesn't really
  • kind of rest on their laurels and is constantly trying to innovate,
  • constantly trying to heed the needs of the customer.
  • This started early on with Bezos using the strategy to get big fast helping
  • Amazon eclipse its once arch rival, Barnes & Noble.
  • Since then, it's helped Amazon gobble up countless other retail markets as
  • well, embark on lucrative ventures like Amazon Web Services, and even
  • become a Hollywood studio with shows like "The Marvelous Mrs. Maisel" and "Jack Ryan."
  • Amazon has invested so much revenue in itself over the years that
  • sometimes it didn't even make a profit.
  • And when that happened, it could carry forward losses to write off on future tax bills.
  • In 2018, those carryforward losses eligible for federal write off amounted
  • to $627 million.
  • Then there's massive federal tax credits, which the company reports are
  • primarily related to research and development from its A.I
  • assisted logistics network to its suite of consumer electronics products
  • Amazon has poured tens of billions of dollars into research and
  • development over the years.
  • But that's not the only tax credit Amazon qualifies for.
  • The big one last year was the expensing that is allowed for investments in
  • plants and equipment and buildings and things of that sort.
  • Trump's Tax Cuts and Jobs Act supercharged this credit, a perk that Amazon
  • has cashed in on.
  • The idea behind the expanded credit.
  • The big problem the U.S.
  • economy is that it has not been as productive recently as in the past.
  • And so one solution which would help sort of companies everywhere is if
  • they invested more in machinery and training to make their workers more productive.
  • But not everybody buys into this reasoning.
  • The tax breaks Amazon is getting, they're being rewarded for what they were going to do anyway.
  • Because when you're a company as successful, as profitable, as cash rich
  • as Amazon is, you make investments when you have the money to do them and
  • when you see the need for those investments.
  • In 2018, Amazon had about one point four billion dollars in total available tax credits.
  • Finally, there's the company's use of stock based employee compensation.
  • Basically, this allows Amazon to pay employees using stock and then take
  • the value of that stock off their tax bill.
  • Amazon rewards its employees, especially its executives, with stock based
  • compensation, and Amazon stock has been rising fairly substantially for many years.
  • And so the size of that stock based compensation is now very large and
  • affords Amazon a large write off.
  • Some say the federal government ends up making just as much in the long run
  • from stock based compensation because the stock is taxed when it's sold.
  • But others have concerns because of the major difference between the value
  • of the stock when it's offered to employees versus the value when it's written off.
  • They give executives the right to purchase a certain number of shares of
  • stock at a set price.
  • The price of the stock goes way up.
  • The company is then allowed to write off the value of that stock and
  • suddenly the tax breaks can be huge.
  • Amazon deducted about one point one billion dollars from its tax liability
  • using this method in 2018.
  • So that's how Amazon secures such a small federal income tax bill.
  • But before we get ahead of ourselves, we should probably remember that
  • Amazon does pay certain taxes like state taxes, local taxes, other federal
  • taxes and international taxes.
  • In a statement to CNBC, an Amazon spokesperson said, Amazon pays all the
  • taxes we are required to pay in the U.S.
  • and every country where we operate, including paying 2.6 billion
  • in corporate tax and reporting 3.4 billion in tax expense
  • over the last three years.
  • The company also touted its investments and job creation in the U.S.
  • But according to data compiled by the Institute on Taxation and Economic
  • Policy, Amazon had an effective federal tax rate of just 3 percent over 10
  • years. That's far below the once 35 percent corporate income tax rate in
  • the United States and even the new 21 percent rate now.
  • And Amazon's story is not exactly unique.
  • Another disruptor Netflix and even a more traditional auto company General
  • Motors both report expected net federal income tax benefits in their 2018 annual filings.
  • When we asked Netflix about it, the company highlighted the 131 million it
  • paid in taxes total but wouldn't break out its federal bill.
  • It all seems to be part of a larger trend over the past 70 years, we've
  • seen a decline in corporate income tax revenue as a share of the larger
  • economy and in the last decade.
  • Companies as diverse as Southwest and Goldman Sachs, just to name a few,
  • have all had at least a year where they reported net tax benefits in their
  • S.E.C. filings, but could lowering America's corporate tax rate actually
  • make it more competitive for companies to do business here?
  • I think what a lot of economists would say is that the corporate tax is a very bad tax.
  • One you have sort of a global economy where economic activity is
  • everywhere. You have other countries cutting their tax rates.
  • You want to sort of incentivize economic activity to be in your country.
  • What do you want these companies to do?
  • You want them to invest in new machinery.
  • Want them to invest in their workers.
  • You want them to have more profits, which then they can use to invest
  • more. That's what you want corporations to do.
  • You don't want corporations necessarily be paying lots of taxes that's not
  • what they're there for.
  • Others say it deprives the country of much needed tax revenue without a lot of benefit.
  • We may yet succeed in this experiment of lowering our effective tax rates
  • and our statutory tax rates to draw more business to the US.
  • But so far, we're not seeing the type of level of growth in business and
  • investment that would make up for the lost revenue when we lowered our tax rates from 35 to 21.
  • So yeah, it's an issue because we need the money.
  • As of 2017, the U.S.
  • has corporate tax revenue as a share of the larger economy was lower than
  • most other peer nations ranking below Italy, South Korea and Mexico.
  • We're in a lot of trouble.
  • We're facing one trillion dollar deficits as far as the eye can see.
  • Ultimately, this means everyone else has to pick up the slack.
  • That two billion dollars Amazon is not paying will have to get paid by
  • smaller businesses that don't have the wherewithal to lobby for tax
  • breaks. It'll get paid by middle income families in the form of higher
  • taxes in some way.
  • The reality is this is how business has been done for years.
  • Corporations with savvy lobbyists on their payroll have found ways to
  • convince politicians in both parties to leave loopholes in the tax code.
  • So I'm a tax lawyer and I drafted tax rules for Congress for six years.
  • Multinationals have a very strong presence on the Hill.
  • When I was there, we would meet every week with companies and their
  • lobbyists. And I think the interest is disproportionate.
  • I mean, every American, including every American company, has a right to
  • petition Congress and to share their concerns with Congress.
  • The trouble is, sometimes of those with the most resources have the loudest voice.
  • But business as usual may be changing as average Americans have begun to
  • wonder whether this bargain really benefits them.
  • It's a question that came front and center during Amazon's hunt for a second headquarters.
  • Amazon has made it official.
  • The online giant announced it's splitting its new headquarters into two locations
  • Crystal City in Northern Virginia and Long Island City in Queens.
  • The company courted massive interest from hundreds of cities.
  • Amazon today saying they are bringing at least 25,000 jobs with an average
  • salary of $150,000.
  • New York's governor, a mayor, saying the $3 billion dollars in tax
  • incentives they gave Amazon for an expected 27.5 billion in tax revenue would pay off big for New Yorkers.
  • That is the highest rate of return for an economic incentive program that this state has ever offered.
  • This certainly consolidates New York City as a great international tech hub.
  • Despite positive polling on the deal, a groundswell of New Yorkers vehemently disagreeing.
  • Whose city? Our City! Whose City? Our City!
  • We want to make sure that they know that this community is going to stand
  • up and fight against this deal.
  • Any politician in this progressive city and a state who's willing to hand
  • out three billion dollars to Amazon, there should be a career ender right there. Period.
  • And soon it all came crashing down.
  • Breaking news, Amazon canceling its controversial plans
  • Now it will not build a headquarters in New York
  • The world's biggest company just got sent packing thanks to an unfriendly welcome by New Yorkers
  • Has the populist victory in the HQ to fight change the game?
  • I mean, it shows that everyday Americans can have more say in this country
  • than the richest man in the world.
  • Will it ignite a grassroots movement demanding that loopholes be tightened
  • and the effective tax rate be raised all the way up to the federal level?
  • We should not have a regressive tax system in which large profitable
  • corporations like Amazon pay nothing in federal income taxes.
  • Or is it just a flash in the pan?
  • As even President Trump, a frequent critic of Amazon, came to the deal's defense?
  • Well, I think it's a loss for New York City.
  • And the $3 billion dollars wasn't a check.
  • It was a form of taxes over a period of time that now they'll never see.
  • Only time will tell.
  • But one thing is for sure, it's quite normal for some corporations to pay
  • no income tax to the federal government.
  • Is that a normal you're satisfied with?

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Description

Amazon paid $0 in federal income taxes in 2018. On top of that, the company also received a multi-million dollar tax rebate from the federal government. How does the company do it? President Trump's tax cuts, aggressive revenue reinvestment, years of R&D, and employee stock compensation all helped. Does America have a corporate income tax problem?

Amazon is one of the world's most valuable companies, valued at nearly $800 billion, and the e-commerce giant pulled in $232.9 billion in global revenue in 2018.

And yet, Amazon's federal tax bill this year: $0. For the second year in a row.

In fact, Amazon is actually getting a federal tax refund of $129 million this year, due in part to a combination of tax credits and deductions. This is despite the fact that Amazon nearly doubled its taxable income in 2018 to $11.2 billion, from $5.6 billion a year earlier.

In other words, Amazon is basically paying a -1 percent federal income tax rate this year after reportedly paying a federal rate of more than 11 percent between 2011 and 2016, according to The Week.

Sen. Bernie Sanders, I-Vt., who has criticized Amazon in the past for not paying higher federal taxes, took to Twitter to point out that any Amazon Prime member paid more for that program's annual fee ($119) than the company paid in federal taxes. Prime has 100 million subscribers.

"Amazon pays all the taxes we are required to pay in the U.S. and every country where we operate, including paying $2.6 billion in corporate tax and reporting $3.4 billion in tax expense over the last three years," an Amazon spokesperson said in a statement provided to CNBC Make It.

Amazon reported its sizable federal refund in a recent corporate filing for the company's fourth-quarter earnings report. However, Amazon also notes in that filing that it will pay $756 million in total taxes this year, between state and international taxes.

A report this week from the Institute on Taxation and Economic Policy, or ITEP, a nonpartisan and nonprofit tax policy think tank, pointed out the fact that Amazon will not pay federal taxes for the second year in a row. In fact, last year, Amazon received an even larger refund, getting $137 million from the federal government.
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How Amazon Paid $0 Federal Income Tax in 2018