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Amazon paid NOTHING in federal tax: The simple reasons why


Amazon earned $232 billion in revenue last year. It's led by the world's richest man. And yet somehow, did not owe any tax on its federal tax return. That's likely less than you. It's less than the bakery down the street. How is that possible?

Most likely this makes you a little upset. You pay taxes, why doesn't Amazon? And then, maybe you think it's probably some sort of offshore banking scheme, or they're taking advantage of some crazy tax loopholes, but in reality, it's actually much more simple than that.

Disclaimer: They do pay (some) taxes - $1.2 billion according to their financial statements.

They pay:

  • Property Tax

  • Municipal taxes

  • State Taxes

  • Sales tax on products sold

But if you look at this number compared to how much money they actually take in, it's a very, very small percentage.

So why don't they pay any federal income tax?

I'd say there's two main reasons for that:

1:

The first main reason is that Amazon is actually not as profitable as you may think. They make a lot of money. They sell a lot of things, but they actually spend a lot of money to get those sold. Amazon's business model, in the most basic form, is to spend a lot of money. They enter a new market, they spend tons of money to try and take over that market, and then in the end, have essentially all of the sales coming from it. So, it's a very expensive model, and they constantly want to grow, so they're spending money in a new market this year, a new market next year, and in the end, they don't end up with a lot of profits. This might seem like a bad thing. Doesn't a company wanna make profits? Of course they do, but the most important thing for Amazon is to grow the value of the company. And they continue to do that by growing and having more sales over time.

2:

The second main reason why they don't pay any federal tax is the way that they spend money. Amazon spends money exactly how the federal tax credits want them to spend.

R&D

Amazon spends a lot of money on research and development. They spend more than Apple, they spend more than any pharmaceutical company, they actually spend more than any other company out there. And the country gives a lot of tax credits for these kind of expenses. Notice that I said largest spending company. They're actually not the largest overall. That's the US military, and by a pretty wide margin. But that's another story.

Losses

Hundreds of millions in losses from prior years ($627 million) were not all used in those years to reduce taxes. So now Amazon can apply those losses to reduce their taxes now.

Shares as Compensation

Their tax bills are reduced quite a bit by the way they pay some employees, as well. Amazon gives out a lot of shares as payment. And when you give out shares, you don't actually have to spend any money paying your employees, but you still get the tax deductions from paying that money.

But still, is it fair that Amazon pays no tax?

Many would argue that the tax credits they're getting aren't really working, because their business model is gonna stay the same, no matter which tax credits they get.

However, Amazon is the perfect example of a company spending the way the tax code encourages. And it's paying off in the ways you would hope, it's growing rapidly, creating jobs and moving technology forward. Plus you're gonna get that yoga mat with free shipping the very next day.