Amazon is the world’s largest online retailer, pulling in billions of profits. So, does Amazon pay taxes? In this article, we’ll examine whether Amazon pays taxes and, if it does, how much it is.
Business taxes are quite different from individual taxes. While in most cases, big companies pay thousands, if not millions, of taxes, it’s not unusual for large US corporations to pay little or no US taxes despite making huge profits. That’s why it’s no surprise you’re wondering whether Amazon pays taxes.
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Does Amazon Pay Taxes?
Amazon is known for taking advantage of corporate tax loopholes to avoid paying federal taxes. Despite making an annual revenue of 386 billion US dollars, Amazon paid 9.4% in federal income tax. Without tax breaks, Amazon is required to pay 21 percent of its profits in corporate income taxes. However, Amazon uses tax credits, stock options, and tax breaks to avoid paying more taxes.
Why Does Amazon Pay No Taxes?
Even though Amazon is a large corporation, it does not pay much in taxes. It uses tax breaks for stock options and other tax loopholes to avoid paying much tax. For years this e-commerce giant has paid a federal income tax rate of 9.4%, which is much less than the required corporate tax of 21%. This is because of the extensive tax credits and deductions that allow Amazon to keep its tax status relatively low.
Amazon largely pays no corporate taxes because it vigorously reinvests its profits into its operations. If Amazon had no corporate tax breaks, it would discourage reinvesting and create more opportunities in the cities in which it operates. Therefore, it receives incentives and deductions for its research, investments, and employee compensation resulting in lowering its tax liabilities, sometimes down to zero or near zero.
Amazon also reduces its taxes by adopting environmentally-friendly practices. To achieve this, Amazon invests in sustainable packaging by eliminating millions of tons of product packaging material. It is also projected to have thousands of electric delivery vehicles in the next 20 years. Therefore, Amazon’s environmentally-friendly practices and technology make it qualify for huge tax deductions and credits.
Where Else Does Amazon Pay Taxes?
Even though Amazon is headquartered in the US, it also pays taxes in countries like the UK, Canada, and Mexico. While income tax requirements differ in every country, Amazon still gets tax deductions in countries where it operates, thanks to its heavy investment activities. As a multinational company, Amazon is required to pay taxes in every country it operates in.
However, many politicians criticize Amazon’s low tax rate, given that it’s a billion-dollar business. In fact, for years, Amazon has been receiving tax refunds from the US Government instead of paying more taxes. However, Amazon claims that it lawfully fulfills its tax obligations and deserves the deductions and exemptions it receives given that it reinvests billions of dollars.
How Much Taxes Does Amazon Pay?
Amazon also pays plenty of taxes in terms of payroll taxes and also state and local taxes. You should also keep in mind that Amazon employees also pay taxes on their wages. It was until 2020 that Amazon paid its federal income taxes for the first time in four years. In 2017 and 2018, Amazon paid zero dollars in federal income taxes, something which changed in 2019, when it paid $162 million in taxes. In fact, in 2017, Amazon received a $137 million tax refund, followed by a $129 million federal refund in 2018.
After the statutory corporate tax rate was lowered in 2017, Amazon avoided paying taxes by reinvesting its profits. In 2020, Amazon generated an income of $20 billion. With the statutory corporate tax rate at 21%, Amazon was required to pay a federal income tax of 4.1 billion. However, Amazon only paid $1.8 billion in tax which was not only half of the required tax rate but also meant that Amazon avoided paying $2.3 billion in taxes.
Does Amazon Get Tax Breaks?
Amazon pays little or no taxes mainly because it gets huge tax breaks from the US Government depending on its revenue and investment activities. Amazon has been paying less than half of the standard corporate tax rate thanks to these tax breaks. Amazon gets tax breaks because of the following reasons:
- It invests heavily in research and development.
- Amazon’s investment in property, plant, and equipment: Amazon’s increased PPE expenditure has led to spontaneous real estate growth and job opportunities that benefit the cities it operates in. This makes it eligible for tax breaks.
- Amazon’s employee stock compensation: Since tax deductions also increase as the stock increases, Amazon’s huge tax breaks are due to the stock-based compensation it receives for its employees.
Between 2018 to 2020, Amazon only paid a 4.3% tax rate after receiving a tax break of $7.2 billion. As a publicly-traded company, Amazon avoided paying $1.8 billion in taxes after receiving tax breaks for its stock options. Additionally, Amazon saved $639 million after receiving a wide range of tax credits because it invested in developing new locations, increasing the number of jobs, and investing in greater sustainability.
Do Other Companies Get Tax Breaks
Even though the US corporate tax rate stands at 21%, many large companies pay little or no taxes. This is because many of the biggest companies in the US benefit from tax breaks and huge deductions. Like Amazon, companies like Goldman Sachs, General Motors, and Southwest Airlines also enjoy similar tax break benefits. This means that even though Amazon is mostly criticized for paying low taxes, it’s not the only company that benefits from tax breaks.
A quick look at Amazon’s financial reports shows that it does pay taxes. However, being a multi-billion business, it hugely benefits from massive tax breaks and incentives that allow it to pay little or nothing in tax. With so many corporate tax loopholes, Amazon actually pays $0 in federal income taxes.
Even though many people criticize Amazon for evading taxes, the low tax rate is attributed to its long-term investment in research, development, sustainability, and extensive job opportunities. Large corporations like Amazon will only start paying their fair share of taxes by ending corporate tax benefits and closing loopholes. This would help the government raise more revenue but also discourage large corporations from reinvesting their profits.