Amazon Tax Outrage

Madeline Chrome, Writer

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   Amazon, a multinational company popularly known for its online and delivery markets, reportedly owes $0 in corporate income tax for the year of 2018. According to The Motley Fool, Amazon was ranked the second largest e-commerce company in the world in 2018, with a Gross Merchandise Value (GMV) of $239 billion. This is a 29 percent increase from 2017. Another 26 percent increase is projected for 2019, as attested by eMarketer.

   The government has taken measures to regulate the income taken in by large corporations. They do this through a system called corporate income tax, which is a tax placed on the profits of companies.

   “State ones all differ a little bit, but ultimately it works a lot like personal tax- you make money, you pay a percentage of it, you have deductions and credits that lower what you make so… the game is kind of fair for everyone,” said Mason High School teacher Brittany Catalano. As of 2018, corporate income tax is set at 21 percent, down from the 35 percent in 2017.

   Seeing that Amazon reported earning $11 billion in 2018, the corporate tax they would be expected to pay the government for that year should amount to about $2.3 billion. However, after all the math was done and all the tax files were filled out, Amazon’s corporate income tax owings were $0, which surprised and outraged many.

   According to Vox magazine, this scenario, although surprising, is completely legal and can be explained with three main points.

 

  • “Amazon is able to avail itself of the research and development tax credit, a not-very-controversial policy that encourages profitable companies to plow earnings into R & D.”

 

   In other words, if a company reinvests their earnings into research and development to further their company, Congress can decide to hand out a tax deduction as compensation. Amazon did this last year, and Congress approved that their actions qualified for compensation, thus taking away from companies’ corporate tax owings.

 

 

  • “The Trump tax bill included a temporary provision allowing companies to take 100 percent tax deduction for investment in equipment.”

 

   In 2017, President Donald Trump signed The Tax Cuts and Jobs Act that, along with other tax reforms, permitting companies to be reimbursed for any purchase of equipment made within the year. Because Amazon put a good amount of money toward equipment last year, they got a big tax credit for it, cutting their corporate income tax charge.

 

 

  • “Companies can deduct the cost of stock-based compensation from their taxable earnings even though it doesn’t actually cost companies any money to hand out shares of their own stock to employees.”  To simplify this, if a company gives an employee a share of stock as a salary or a bonus, they are really not paying anything more than they normally would, because the employee would already be receiving the same amount of money in a different form. However, because giving out stock can cost a large company like Amazon a lot of money, the government says that if a company does give out stock, they will be compensated for it. Amazon, along with many other big companies, used this legal loophole to cut their corporate income tax amount.

   Although it may seem suspicious that a company as substantial as Amazon owes $0 in corporate income tax despite their continuously growing profit, it is completely legal. “Obviously there are probably loopholes being used in some cases, but in most cases… it’s kind of deceiving when you say that the company didn’t pay at all,” said Catalano. “They maybe didn’t pay income tax, but they probably paid a lot of other taxes and added a lot to the economy.”

   In other words, there is not just one way for a company to pay taxes, but these ways might not be as visible as corporate income tax.