Well, this will be surprising to most of our readers knowing that Amazon pays almost no federal tax, despite having a net worth of over $700 billion. The company has even faced criticism from President Trump for this, yet he recently reduced the corporate tax rate, making it easier for large companies to pay less. Below is the explanation that will help you understand how Amazon gets away with paying taxes:
- Amazon avoids paying federal taxes using a variety of tax credits and tax exemptions that are legal and built into the U.S. federal tax code. One of these includes the research and development tax credit which allows them to deduct some of the costs of new investments. Also, they save tax by deducting stock-based compensation of executives.
- Amazon avoids paying state sales tax by smartly taking advantage of the Internet Tax Freedom Act which says online retailers didn’t have to charge sales tax. This allowed Amazon and other retailers to sell tons of products tax-free. By 2017, that all changed as Amazon started charging sales tax in all the states that have it, but it’s not that simple, a lot of third-party sellers sell stuff through Amazon as well, and many of them don’t charge sales tax.
- Meanwhile, Amazon is looking for even more sweet tax deals. With its new campus, Amazon is trying to come up with new incentives to get Amazon to come into their town. New Jersey, for example, is offering $7 billion in tax breaks if Amazon builds its new campus somewhere around Newark, New Jersey. Those aren’t the only tax deals Amazon has gotten. From 2005 to 2014, Amazon got over $600 million in tax breaks to build warehouses in certain states. The company got another $147 million in tax breaks for building data centers around the country.
Amazon might be facing issues because of President Trump’s attacks, but its tax practices aren’t unique. A lot of big companies find their ways to pay as little tax as possible.
