Does Amazon really pay no taxes? Here is the complicated answer

Earlier this week, former Vice President Joe Biden pointed to tax payments made by the company during a campaign shutdown in Iowa, saying it should at least pay taxes. He tweeted on Thursday: "No company making billions of dollars in profits should pay a lower tax rate than firefighters and teachers."

Amazon tweeted, "We pay every penny we owe. Congress has designed tax laws to encourage businesses to reinvest in the US economy. We have. … Suppose VP Biden's complaint is about the tax code, not Amazon. "

Senator Elizabeth Warren (D., Mass.) Quoted Amazon as proposing a new corporate tax that would cost the company nearly $ 700 million in 2018.

Here are some questions and answers exploring the tax situation of the company.

Did Amazon really pay no taxes for 2018?

We can not know. Amazon's tax returns are private and its financial statements present the costs in terms designed for shareholders, not for decision makers: it includes tax accounting measures, which differ from the tax return calculations.

Why do people say that Amazon has not paid taxes?

On the one hand, by comparing pre-tax US earnings and the company's "current provision" for US income tax, Amazon earned $ 11 billion and posted a negative tax bill of $ 129 million. in 2018, which was essentially a net benefit of the tax system.

However, the current provision is not the same as that of Amazon's 2018 tax return. The current provision is rather an accounting measure of the corporation's short-term tax costs. This is an estimate of the 2018 tax bill, previous dispute settlements, changes to previous projections and updates to reflect new regulations and laws. Amazon's total effective tax rate for 2018 rose to 11%, which includes the current provision, but also foreign, state and deferred taxes.

"I cheerfully acknowledge that [the current provision] That's not what we really want to know, but it's also the closest thing we can ever see, "said Matt Gardner, principal investigator at the Institute on Taxation and Economic Policy, a leftist group whose the report on Amazon and other companies have attracted the attention of Democrats.

Does Amazon get a $ 129 million refund?

Not necessarily. It seems that Amazon has paid little or no federal income tax for 2018. Its net operating loss carryforwards – accumulated losses that offset future taxable income – have reached 627 million USD at the end of 2018, compared with 226 million USD the previous year, according to securities deposits. Its deferred federal tax credit – the accumulated credits that offset future taxes – has risen from $ 855 million to $ 1.4 billion, mainly because of the credit for research and development.

These are signs that Amazon's accumulated losses and tax credits are faster than the income and taxes payable. The law allows tax payments to be deferred smoothly throughout business cycles and the life of a business.

"Because we operate in a low-margin business and invest in innovation and infrastructure, we do not realize as much pre-tax profits as other high-tech companies, so our taxes are lower." said Amazon in a statement.

Does this mean that Amazon has not spent any money on income taxes in 2018?

No. Even though Amazon's "current provision" figure for 2018 was negative for federal taxes, Amazon reported making $ 1.2 billion in total income tax payments in that year, a greater than 2011 to 2016. The Company does not disclose how this payment was allocated between taxation years or jurisdictions – such as the United States, the States and foreign countries. For example, the $ 1.2 billion could include California income taxes for 2016 or UK payments for 2017.

What is the right way to determine what Amazon actually pays?

There is no good way, and every year is a snapshot. Longer views can help. From 2012 to 2018, Amazon reported pre-tax income in the United States of $ 25.4 billion and current federal tax provisions amounting to $ 1.9 billion. This is a tax rate of 8%, low but not zero or negative. In hindsight, since 2002, Amazon has realized $ 27.7 billion in pre-tax profits and paid $ 3.6 billion in cash income tax, a tax rate of 13%.

It's still a pretty low rate. Why is that?

Let's start by investing. Amazon has spent more than $ 160 billion on investments since 2011, including its distribution network, cloud computing centers, and wind and solar farms.

When a company buys depreciable property, such as a warehouse equipment, it processes costs differently for tax and financial purposes.

For financial statements, the company records expenditures over the useful life of the asset, without deducting current profits. For tax purposes, companies can now immediately deduct the total amount of many capital expenditures, thereby reducing the initial taxable income and hence taxes.

What else is reducing Amazon's tax rate?

When companies grant restricted stock awards to their employees, they incur an expense for financial statement purposes based on their estimated value. The tax deduction is not defined until the earnings are earned and the employees can not accept them and pay the personal income tax. If a company allocates restricted shares worth $ 20, it records an expense of $ 20 and assumes it will get a $ 20 tax deduction. But if the stock price rises and it goes to $ 35, then the company takes a larger tax deduction than expected.

What are the political implications?

Democrats are using Amazon to say that businesses should pay more. Senator Warren plans to tax profitable companies on their results, in addition to the current system. Although Amazon has meddled with the Internal Revenue Service about cross-border tax maneuvers, politicians are not accusing it of doing anything illegal – just giving an example of this. that, according to them, the tax legislation should change. But the current corporate tax system was designed by Congress to encourage investment and research and allow businesses to take advantage of early losses when they become profitable. Changing this could undermine these goals.

-Ken Thomas contributed to this article.

Write to Richard Rubin at [email protected]