How Amazon Paid $0 Federal Income Tax in 2018

Amazon is a very sophisticated tax player. Amazon is very much the canary in the coal mine. They really are doing what many politicians wish more companies would do. Amazon is a huge company, but you know how big it really is. We start with the amazing Amazon somewhere where CEO Jeff Bezos is smiling. It is one of only two American companies to ever reach a trillion-dollar valuation. No one in history has become so rich so quickly. It has made Jeff Bezos the richest man in the world. This is equivalent to one hundred million core subscribers worldwide. And if you put those top subscribers in one country, it would be the 14th largest on the planet.

The planet. But that huge company

paid

no

federal

income

tax on more than $11 billion in profits in

2018

. And somehow, it actually got a $129 million tax refund. So how do they do it? First, there's the tax bill. Tax legislation signed by President Trump reduced the corporate tax rate from 35 percent to 21 percent. Corporations are literally going crazy over this. That immediately reduced Amazon's potential tax burden. Then there's Amazon's smart use of revenue. Amazon invests much of its revenue in itself to cultivate long-term growth. In fact, Amazon has been self-financing for several years. The company questioned significant free cash flow.

One of the things I like about Amazon is that it's a company that doesn't really rest on its laurels and is constantly trying to innovate, constantly trying to address customer needs. This started from the beginning, when Bezos used the strategy of growing quickly, helping Amazon eclipse its one-time archrival, Barnes & Noble. Since then, he has helped Amazon gobble up many other retail markets, 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 into itself over the years that sometimes it didn't even make a profit.

And when that happens, you could carry forward losses to write off on future tax bills. In

2018

, those carryover losses eligible for

federal

write-off amounted to $627 million. Then there are the huge federal tax credits, which the company says are primarily related to research and development, from its AI-assisted logistics network to its suite of consumer electronics products. Amazon has invested tens of billions of dollars in research and development over the years. But that's not the only tax credit Amazon qualifies for. Last year, the most important was the expenditure allowed for investments in plants, equipment, buildings and the like.

The Trump Tax Cuts and Jobs Act increased this credit, a benefit that Amazon has taken advantage of. The idea behind expanded credit. The big problem with the American economy is that lately it has not been as productive as in the past. So, one solution that would help companies around the world is to invest more in machinery and training to make their workers more productive. But not everyone accepts this reasoning. The tax breaks Amazon is getting are rewarded for what they were going to do anyway. Because when you are a company as successful, as profitable, and as cash-rich as Amazon is, you make investments when you have the money to do so and when you see the need for those investments.

In 2018, Amazon had about one point four billion dollars in total tax credits available. Finally, there is the company's use of stock-based employee compensation. Basically, this allows Amazon to pay employees using stock and then deduct the value of those shares from your tax bill. Amazon rewards its employees, especially its executives, with stock-based compensation, and Amazon stock has risen substantially for many years. And so the size of that stock-based compensation is now very large and gives Amazon a big loss. Some say the federal government ends up making the same amount in the long run with stock-based compensation because stocks are taxed when they are sold.

But others have concerns because of the large difference between the value of the shares when they are offered to employees and the value when they are canceled. They give executives the right to buy a certain number of shares at a certain price. The stock price goes up a lot. The company is then allowed to write off the value of those shares and suddenly the tax breaks can be huge. Using this method, Amazon deducted around $1 billion from its tax liability in 2018. 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 pays certain taxes, such as state taxes, local taxes, other federal taxes, and international taxes.

In a statement to CNBC, an Amazon spokesperson said: Amazon pays all taxes we are required to pay in the US and all countries where we operate, including paying $2.6 billion in corporate taxes and reporting $3.4 billion in tax expenditures during the last three years. . The company also touted its investments and job creation in the United States. 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 well below the corporate income tax rate that was once 35 percent in the United States and even the current new rate of 21 percent.

And Amazon's story isn't exactly unique. Another disruptor, Netflix, and even a more traditional auto company, General Motors, report that they expect net federal income tax benefits in their 2018 annual returns. When we asked Netflix about it, the company highlighted the $131 million it

paid

in taxes in total, but did not itemize its federal bill. It all seems to be part of a broader trend over the past 70 years: we have seen a decline in corporate income tax revenues as a percentage of the economy overall and over the past decade. Companies as diverse as Southwest and Goldman Sachs, just to name a few, have had at least one year in which they reported net tax profits in their SEC filings.

But could lowering the corporate tax rate in the United States really make it more competitive for companies to do business here? I think what many economists would say is that the corporate tax is a very bad tax. One has a kind of global economy where economic activity is everywhere. There are other countries that reduce their tax rates. He wants to encourage economic activity in his country. What do you want these companies to do? He wants them to invest in new machinery. You want them to invest in their workers. You want them to make more profits, which they can then use to invest more.

That's what corporations are wanted to do. You don't necessarily want corporations to pay a lot of taxes, which they're not there to do. Others say it deprives the country of much-needed tax revenue without generating much benefit. We can still be successful in this experiment of lowering our effective tax rates and our statutory tax rates to attract more business to the United States. But so far, we're not seeing the kind of level of growth in business and investment that would offset the loss of revenue when we lowered our tax rates from 35 to 21. So yes, it's a problem because we need the money.

As of 2017, U.S. corporate tax revenue as a proportion of the larger economy was lower than most other peer countries, below Italy, South Korea and Mexico. We are in a lot of trouble. We are facing a trillion dollar deficit as far as the eye can see. Ultimately, this means that everyone else has to pick up the slack. The two billion dollars that Amazon is not paying will have to be paid by smaller companies that do not have the means to lobby for tax breaks. Somehow, middle-income families will pay for it through higher taxes. The reality is that this is how business has been done for years.

Corporations with savvy lobbyists on their payroll have found ways to convince politicians of both parties to leave loopholes in the tax code. I am a tax attorney and wrote tax rules for Congress for six years. Multinationals have a very strong presence in the Capitol. When I was there, we met every week with companies and their lobbyists. And I think the interest is disproportionate. I mean, every American, including every American business, has the right to petition Congress and share their concerns with Congress. The problem is that sometimes those with the most resources have the loudest voices. But the current situation may be changing as average Americans have begun to wonder if this deal really benefits them.

It's a question that came to the fore during Amazon's search for a second headquarters. Amazon has made it official. The online giant announced that it will split its new headquarters into two locations: Crystal City in Northern Virginia and Long Island City in Queens. The company aroused great interest in hundreds of cities. Amazon says today it is creating at least 25,000 jobs with an average salary of $150,000. New York's governor and mayor said the $3 billion in tax incentives given to Amazon on projected tax revenues of $27.5 billion would greatly benefit New Yorkers. That's the highest rate of return for an economic incentive program this state has ever offered.

This certainly cements New York City as a major international technology hub. Despite positive polls about the deal, a wave of New Yorkers strongly disagree. Whose city is it? Our city! Whose city? Our city! We want to make sure you know that this community will stand up and fight this deal. Any politician in this progressive city and state who is willing to donate three billion dollars to Amazon should find an endgame right there. Period. And soon everything fell apart. Latest news: Amazon cancels its controversial plans Now it will not build a headquarters in New York The largest company in the world has just been fired thanks to an unfriendly welcome from New Yorkers Has the populist victory in the headquarters to fight changed the game ?

I mean, it shows that ordinary Americans can have more of a say in this country than the richest man in the world. Will it ignite a grassroots movement demanding that loopholes be closed and the effective tax rate raised to the federal level? We should not have a regressive tax system where large profitable corporations like Amazon pay nothing in federal income taxes. Or is it just a passing flare? Did even President Trump, a frequent critic of Amazon, come to the deal's defense? Well, I think it's a loss for New York City. And the $3 billion wasn't a check.

It was a form of taxation for a period of time that you will now never see. Only time will tell. But one thing is for sure: it is quite normal for some corporations to not pay income taxes to the federal government. Is that normal you're happy with?