The giant online retailer Amazon has caused controversy in recent years related to a number of practices. Most recently, it has been revealed that the company pays very little tax on billions of dollars in profits. This has happened even after Amazon founder Jeff Bezos has been competing with a few other individuals for the title of the richest person in the world.
Yahoo Finance had previously reported that Amazon paid exactly zero in federal taxes for the fiscal year of 2018 on over $11 billion in profits. Amazon’s current filing for 2019, which is required by the SEC, showed that about $160 million in federal taxes were paid, but over $900 million were deferred.
An Amazon employee responded in a blog post at the end of January, saying that the company does follow all relevant state and federal tax laws, and their financial situation is simply a reflection of their legal profits and investments along with current tax regulations.
Deferred taxes are a strategy sometimes used by businesses for accounting purposes to postpone payments. This can result in a large discrepancy between what it seems like a company should owe versus what is actually paid out. Ever since new tax laws were passed by the Trump administration, Amazon has gradually been deferring more and more taxes each year. If Amazon was paying the amounts mandated by these new laws, they should owe the federal government about $2.8 billion as opposed to the $160 million that was actually sent out for the 2019 tax year.
An analyst from the Institute on Taxation and Economic Policy claims that Amazon is not establishing any kind of real connection between the company, its tax situation, and the amount actually paid. He claims that a significant portion of what Amazon is sending to the U.S. government is actually payroll tax, which comes from wages that were earned by its employees. They also do not want to collect sales taxes that can be sent to local governments. The analyst added that Amazon should be ashamed of the way the sales tax situation has been handled, and he is surprised by the lack of organized backlash against the retailer. They have essentially been using deductions from stock based compensation and accelerated depreciation to decrease what is considered taxable income.
It is possible that the only reason the company chose to pay greater than zero this year was to avoid negative publicity, or that they may be genuinely running out of deferred tax assets. Amazon admits that they are given billions of dollars in federal tax credits for research and development that offset some of their tax liability.
While Amazon has not been found doing anything illegal yet, critics argue that their avoidance of federal taxes will reflect poorly on the company from an ethical standpoint, especially when most Americans are paying a greater portion of their income to the government.
How should taxes be filed?
While tax laws are complex, individuals and businesses should get help from a tax attorney or other professional to ensure that they are following all relevant regulations. Negligence penalties for avoiding taxes can be a serious financial burden, and criminal charges may even be filed if the government believes an individual or business is intentionally attempting to avoid tax liability.