The ongoing debate about Amazon’s tax bill — and by extension, the U.S. tax code the company navigates to minimize its payments — was renewed Friday when the company disclosed in a regulatory filing its current federal income taxes for 2019: $162 million on $13.3 billion of U.S. pre-tax income, an effective tax rate of 1.2%.
In 2017 and 2018, the Seattle-based company reported a combined $266 million in current tax refunds those years.
Amazon, long the subject of criticism from lawmakers and community groups for its aggressive tax avoidance, sought to put its 2019 tax bill in the best possible light and counter a perception, promulgated in a torrent of social media posts, that it pays zero federal income taxes. In a blog post, the company highlighted a “federal income tax expense” of more than $1 billion, which includes the $162 million in current taxes — paid in 2019 — and $914 million in federal taxes deferred to future years. That would amount to a tax rate of 7.5% on Amazon’s U.S. pre-tax income.
So was Amazon’s 2019 U.S. federal income tax bill $1 billion or $162 million? The discrepancy stems from different financial statements companies prepare for tax authorities and investors, which recognize revenues and expenses at different times.
Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy and a longtime watcher of corporate tax policy and avoidance, argued that the sensible way to measure taxation is what an individual or business pays in a given year, “not what they promised to pay at some future date.”
In either case, Amazon’s federal taxes, like those of many major corporations, are well below the 21% statutory corporate tax rate, lowered by the Trump administration’s 2017 tax cuts from 35%. At the statutory rate, Amazon would have owed $2.9 billion last year.
The Congressional Budget Office this week forecast trillion-dollar U.S. deficits for the next decade, prompting New York Times columnist Nicholas Kristoff to say on Twitter, “We’re putting our kids in debt so that Amazon doesn’t have to pay any federal taxes.”
Amazon cuts its tax bill substantially by giving employees a big portion of their pay in stock — it reported $6.9 billion in stock-based compensation expense last year — and availing itself of various tax credits.
“Like most governments that try to encourage economic investment by companies, the U.S. Congress has written a tax code 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,” Amazon said in its 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 described itself as “the second-largest private employer in the United States — and the fastest growing.” Amazon said it has more than 500,000 U.S. employees spread among locations in 40 states. That’s the majority of its global workforce, numbering 798,000 full- and part-time employees at the end of 2019, up 23% from a year earlier.
Amazon, in its annual report to the Securities and Exchange Commission, disclosed its sprawling real estate portfolio, covering nearly 334 million square feet globally, up 15.7% from the end of 2018. More than 95% of its space is leased.
Beyond its federal income-tax expense, Amazon’s blog post listed more than $2.4 billion in federal payroll taxes, customs duties and other taxes. Its 2019 tax summary also includes $1.6 billion in state and local payroll, property, income and gross receipts taxes.
Taxpayer privacy laws limit insight into Amazon’s state and local tax payments, and a corporate spokesman declined to disclose its Washington tax payments. Meanwhile, a proposal that would allow King County to tax it and other large companies is up for a hearing in the Washington Legislature next week.
Amazon also said in its blog post that it collected and remitted nearly $9 billion in sales and use taxes to state and localities throughout the U.S. last year.
Gardner said it was disingenuous for Amazon to include payroll taxes and sales taxes in a summary of its taxes. He noted that Amazon’s blog post does not say it paid those amounts in taxes, but merely lists the amounts.
“Amazon, like any other company that has employees, collects the payroll tax and remits it to the IRS because they have to and it is impossible to avoid,” he said. “Congratulating yourself for collecting the payroll tax is like congratulating yourself for breathing.”
The same goes for sales taxes. But in this case, Amazon’s avoidance of collecting sales taxes through much of its history — which gave it a marked price advantage over its retail competitors that did collect the tax from customers — makes the inclusion of sales taxes all the more galling, Gardner said.
“Amazon got dragged kicking and screaming into the sales-tax collecting world only in 2017 when they first started collecting sales tax in every single state that levies one,” he said. “The notion that Amazon is any kind of a good taxpayer on the sales-tax front is laughable on its face. Again, this is not something you claim credit for.”
Gardner said Amazon’s ability to vastly reduce its own corporate income taxes but not the payroll and sales taxes, which fall on workers and consumers, exposes the power of corporate lobbyists in shaping the tax code.
“What Amazon is doing here is using tax breaks that Congress has enacted at the behest of corporate America,” he said. “If the American people think that it’s a travesty for a company this big to avoid paying virtually all of their income-tax liability, then there is a remedy and it’s for Congress to examine these tax breaks and repeal them.”