Does Amazon Pay Taxes in the USA?

The notion that Amazon and other large corporations do not pay any taxes is a common misconception. In reality, Amazon pays significant taxes, including sales tax, property tax, and corporate income tax. Let’s explore the intricacies of Amazon’s tax obligations and how they are handled.

Tax Obligations of Large Corporations

Many individuals and businesses are subject to various taxes. Business “A” sets their operating income goal with all expenses included, such as federal, state, and local taxes. When the government increases taxes, the business’s taxes increase, which in turn raises the consumer’s tax burden. Therefore, all taxes ultimately affect the American consumer. For instance, when a company aims for a specific profit level, any changes in tax rates directly impact their financial statements.

Amazon’s Tax Obligations and Reports

In the most recent financial report, Amazon disclosed that it did not owe any federal tax on the income earned in 2017. This figure appears lower due to deductions for stock-based compensation and assets that are depreciating. Despite not owing federal tax, Amazon has reported a substantial tax burden of 3.4 billion over the last three years.

Amazon pays various types of taxes, including:

Sales Taxes

When consumers purchase items from Amazon, the online retailer collects sales tax and remits it to the local government. In the US, most states have a sales tax between 5% and 10%, which is collected by retailers and submitted to the appropriate tax authority. Some states have no sales tax, such as New Hampshire and Delaware.

Property Taxes

Where Amazon owns offices or warehouses, the company is required to pay property taxes to the local municipality. These rates vary based on the assessed value of the property. In some cases, Amazon benefits from property tax holidays negotiated over several years, which is common for new developments.

Income Taxes

Corporations in the US pay corporate income taxes, which are based on their profits. These taxes include federal corporate income taxes and state corporate income taxes. The calculation of “profit” is complex and involves various regulations on expenses, depreciation, and other factors. Companies keep two sets of books for different purposes:

GAAP Books - These books comply with Generally Accepted Accounting Principles (GAAP) and are used for financial reporting to investors. Tax Books - These books comply with tax laws, which can differ from GAAP. Companies can benefit from various tax incentives, such as deductions for hiring disabled people, accelerated depreciation, and research and development (RD) credits.

For publicly-traded companies like Amazon, the public primarily sees GAAP books but not the tax books. In 2018, Amazon reported an income of 11.3 billion, with a tax provision of 1.197 billion. The company set aside 565 million to pay future US federal taxes on income earned in 2018, which it does not have to pay immediately due to tax laws.

Understanding Amazon’s Tax Provisions

Amazon’s tax provisions are subject to several factors:

Stock-Based Compensation - Amazon often grants stock to employees, especially higher-level executives. This stock is usually restricted, meaning the employees cannot sell it immediately. The value of the stock is considered an expense, lowering the company’s taxable income. Research and Development (RD) Tax Credits - RD tax credits can significantly reduce a company’s tax burden. Amazon benefited from these credits, totaling 419 million, which contributed to the difference between the expected tax bill and the actual tax bill. Carryforward of Losses - Companies can use losses from previous years to offset gains in later years, known as a "carryforward." This can reduce the current year’s tax liability.

Overall, Amazon pays significant taxes, adhering to the tax laws set out in the tax code. Misconceptions about corporate tax payments often overlook these intricate details, leading to the belief that large corporations do not pay taxes.