“Amazon actually had to pay taxes in 2019.”
No, your eyes are not deceiving you. Amazon really did pay taxes this year. News broke earlier this week that Amazon, one of the world’s largest companies, paid taxes for the first time since 2016. The announcement was made in Amazon’s SEC filing.
That’s pretty significant, and if you don’t believe us already, we humbly ask that you stick around and give us a chance to convince you.
Why? Well, because corporate taxes are pretty interesting and they actually affect taxpayers like you. On top of that, companies are historically pretty good at getting around paying taxes. So, this is a pretty good opportunity to take a look at the news coming out of Amazon, discuss why companies are able to get out of paying taxes when most taxpayers remain on the hook, and understand the connection between corporate taxes and individual taxes.
So, Amazon had to pay taxes on its revenue in 2019.
The total tax bill was $162 million, which might seem like a lot at first, but when you take a closer look, it really isn’t. At all.
For context, Federal corporate tax rates are 21%. Amazon reported $280.5 billion in total revenue—and $13.9 billion in pre-tax income—for 2019. And that big number, $162 million, is only 1.2% of their reported income. And CEO Jeff Bezos is in a seemingly never-ending competition with Bill Gates for world’s richest person.
In reality the company was still pretty close to squeaking out with another tax-free year in 2019. So, how does that work?
We’re not here to rag on Amazon. That’s because their ability to pay little or no tax annually, despite quickly growing profits, isn’t really an ability that’s unique to them.
Many large companies pay very little in taxes, because they all have a number of completely legal tax strategies they can deploy in their favor. For example, companies may be able to deduct depreciation, which could amount to millions for companies with a lot of qualifying assets. Other companies simply locate their headquarters in corporate tax-friendly states where corporate income won’t be taxed as heavily—or at all.
However, many international companies also use a number of strategies that are arguably more questionable. And even if many of these strategies are legal, they certainly earn their companies a bad rap with some financial analysts. For example, international corporate entities like Alphabet or Apple can move their money through various companies to lighten their tax burden before bringing it back to the U.S., or house patents overseas in low-tax countries.
If you’re looking for some infotainment and have an extra 16 minutes to spare, check out John Oliver’s episode of “Last Week Tonight” where he dives into some of these tax strategies.
Most people who take issue with major companies like Amazon or Google paying next to nothing in taxes seem to emphasize the idea of paying your fair share. They’d tell you that these companies make billions of dollars and avoiding their taxes places the burden on the rest of taxpayers.
Meanwhile, others would disagree. They might say that low corporate taxes allow these companies to invest in their workers or in research and development. A high corporate tax rate might stifle corporate growth or the growth of the economy.
If you can’t tell by now, federal corporate taxes are a politicized issue like just about anything else! But while we’ll leave that discussion up to the pundits, it’s worth mentioning that your local and state corporate tax laws can have tangible impacts on you.
Remember Amazon HQ2? Cities from across the U.S. were offering Amazon major tax breaks, sometimes up to a decade or more and totaling billions of dollars, to set up shop there. A new Amazon headquarters could bring thousands of workers and millions in taxes, but critics felt that Amazon needed to share some responsibility for the impact, and potential strain, it would have on these communities.
When Amazon didn’t get these tax breaks in New York City, it decided not to set up HQ2 there. But a few months later, Amazon changed its mind. As for the long-term effects, we may just have to wait and see to find out who was “right,” after all.
It’s easy to skim by boring tax news, but the more you look into it, the better off you’ll be. At the very least, now you have a better understanding of Amazon’s recent tax announcement, how corporate taxes work, and what they may—or may not—mean for you. Maybe you still find it boring! Hey, we know not everyone is quite as big of a tax nerd as we are. And we’re okay with that.