Taxes are just a part of life, whether you like paying them or not.
Individual taxes are one thing, but business taxes are a whole different ballgame, with the companies you know and love required to pay thousands and even millions of dollars in tax.
If you have ever shopped on Amazon, you’re probably familiar with how well-known this e-commerce retailer is.
But just how big is this business, and does Amazon pay taxes? I was wondering if Amazon pays taxes, too, so I started digging, and here’s what I found out!
Does Amazon Pay Taxes?
Amazon has a long history of avoiding paying federal taxes thanks to corporate tax loopholes. With annual revenue of 386 billion U.S. dollars, Amazon had a 9.4 percent federal income tax rate, compared to the 21 percent statutory corporate tax. In many cases, Amazon uses tax credits, stock options, and tax credits to pay less tax.
If you’re still curious about how and where Amazon pays taxes, then keep reading for the full details on Amazon’s tax status.
Why Does Amazon Pay No Taxes?
Although Amazon technically pays taxes, it’s not as much as you would think for a billion-dollar corporation.
Much like Walmart and other major corporations, Amazon’s massive revenue and expenses put it in a prime position to benefit from corporate tax loopholes.
By using tax breaks for stock options and other tax credits, Amazon keeps its relatively low tax status.
The e-commerce leader has been paying minimal federal income taxes for years, and in recent fiscal years, Amazon paid a federal income tax rate of 9.4 percent, much less than the 21 percent outlined in statutory corporate tax laws.
Extensive tax credits and deductions are the keys to Amazon’s success when it comes to keeping corporate tax obligations under control.
Additionally, Amazon is allowed to pay a low tax rate because it receives incentives and deductions for research, investment, and employee compensation.
Another way in which Amazon can reduce its tax bill is by investing in environmentally-friendly technology.
Amazon is committed to sustainable packaging, having eliminated over 1 million tons of product packaging material since 2015.
Also, the company pledged to have 100,000 electric delivery vehicles in the next 20 years. It’s practices like these that help Amazon qualify for hefty tax deductions and credits.
Where Does Amazon Pay Taxes?
While the bulk of Amazon’s taxes are owed in the U.S. where the company is headquartered, it also pays taxes in countries like Canada, Mexico, and the U.K.
Income tax requirements vary by country, but Amazon is also able to get tax deductions in its international locations due to its heavy investment activities.
Amazon needs to pay its taxes in every country it’s located in, something the company has earned criticism for in the past.
The reason why Amazon has received its fair share of criticism over tax activity is that many politicians have flagged the low tax rate paid by the e-commerce giant.
Not only that, but for several years Amazon actually received tax refunds from the U.S. Government, rather than the other way around like with many corporations.
However, Amazon continues to push back against this criticism, saying the company meets its tax requirements and receives tax cuts fair and square. A
fter all, Amazon spent $42.7 billion in research and development technology investments in 2019 alone.
How Much Does Amazon Pay In Taxes?
2020 marked the first time in four years that Amazon had to pay federal income taxes.
When Amazon submitted its U.S. Securities and Exchange Commission (SEC) filing for 2019 taxes, this document revealed $162 million in taxes owed.
This was a big shift from 2017 and 2018 when Amazon paid $0 in U.S. federal income tax.
In fact, in 2017 the U.S. Government gave Amazon a $137 million tax refund, followed by a $129 million federal refund in 2018.
The 2017 Tax Cuts and Jobs Act lowered the statutory corporate tax rate which helped Amazon avoid taxes with its billion-dollar investments.
After paying its federal tax bill in 2020, Amazon had an even larger tax payment due in 2021. Amazon recorded a worldwide pretax income of $24 billion in 2020 – up 73 percent from its $14 billion earnings in 2021.
With a 38 percent increase in sales during the pandemic year, Amazon generated $20 billion in U.S. income for 2020.
If Amazon paid the statutory corporate tax rate of 21 percent, it would have totaled $4.1 billion in federal income tax.
However, Amazon’s reported $1.8 billion tax payment is less than half of the standard tax rate, meaning the company avoided paying $2.3 billion in taxes.
Does Amazon Get Tax Breaks In The U.S.?
Amazon’s low federal income tax rate is due in large part to generous tax breaks offered by the U.S. Government.
When it comes to how much Amazon gets in tax breaks, it depends on the company’s revenue and investment activity for the year, although in the past few years, Amazon has paid less than half of the standard corporate tax rate.
During 2018-2020, Amazon received $7.2 billion in tax subsidies, paying an effective 4.3 percent rate in federal income tax.
Keep in mind the U.S. Government offers tax breaks for stock options, and as a publicly-traded company, Amazon saved $1.8 billion using these tax breaks.
Then there was another $639 million saved thanks to a range of tax credits, most importantly continued investments in developing new locations, increasing the number of jobs, and commitment to greater sustainability.
Is Amazon The Only Company That Gets Tax Breaks?
Amazon’s tax activity or lack thereof has received a bit of heat from politicians and consumers alike.
One prime example comes from Senator Bernie Sanders, who tweeted in 2019 that Amazon Prime members pay more for their $119 annual subscription than Amazon paid in federal income taxes in 2017 or 2018.
While Amazon is one of the most well-known and talked-about companies in terms of tax breaks, it’s certainly not alone.
General Motors, Southwest Airlines, and Goldman Sachs are just a few major companies that have reported similar benefits such as a net federal income tax.
If you look into many of the biggest companies in the U.S., you will find that they benefit from tax breaks and hefty deductions just like Amazon.
To know more about Amazon, you can also see our articles on how much does Amazon makes a day, week & month, which credit bureau does Amazon uses, and the Amazon tax exemption program.
Conclusion
As No. 2 on the 2021 Fortune 500 list, Amazon is a billion-dollar company that benefits from massive tax breaks and incentives. Although Amazon netted a $20 billion income in 2020, it only paid $1.8 billion in federal income tax.
If Amazon paid the full 21 percent statutory corporate tax rate, it would have owed $4.1 billion, so effectively Amazon avoided $2.3 billion in taxes last year.
Like other major corporations, Amazon takes advantage of tax deductions, mainly for investment and employment purposes.
Because Amazon has expanded rapidly in the last decade to become the second-largest employer in the U.S. with approximately one million employees, it receives tax benefits for its long-term commitment to jobs, research, development, and sustainability.
