But if you order today, you can get two deferred tax assets for the price of one.
While your first impression of “Amazon” may simply be the world’s largest online retailer, if not the beloved rainforest, the truth is that the company contains multitudes. For example, it’s a purveyor of quality literature and a mediocre show producer. It’s one of the internet’s largest web hosting platforms. And yes, it’s where you can buy Christmas decorations in summer and Halloween costumes on Christmas.
It’s also really good at not paying its taxes.
In 2019, the Fair Tax Foundation released a report on the combined $100 billion tax gap from Facebook (now Meta), Apple, Netflix, Google, Microsoft, and Amazon — a group known as the “Silicon Six.” Of these companies, Amazon reportedly had the poorest tax conduct, paying taxes that amounted to 12.7% of its profit at a time where the federal tax rate was 35%.
This put Amazon at the lowest tax-to-profit rate of the Silicon Six at the time — but that status wasn’t enough for the company. Amazon wanted to pay even less.
And so they did: In 2021, Amazon paid only 6% of its profit in federal income tax, according to the Institute of Taxation and Economic Policy — despite record domestic profits of $35.8 billion in fiscal year 2021, a 75% increase from $20 billion in fiscal year 2020. (Amazon’s fiscal year matches the calendar year, beginning in January and ending December.)
Additionally, Amazon’s tax contingencies increased to $4 billion in fiscal year 2022, up from $3.2 billion in fiscal year 2021, according to its annual report. Tax contingencies — also known as “uncertain tax benefits” — are estimates of tax benefits that businesses have claimed with authorities, but are unlikely to be approved.
The higher the tax contingency, the more aggressive a company is in pursuing tax avoidance — and Amazon’s have been steadily increasing over the years.
But avoidance rates and contingencies aside, there’s one thing that isn’t increasing.
Amazon made no profit in 2022, according to its annual report. In fact, Amazon lost $8.2 billion in domestic profits last year — a loss it largely attributed to investing in Rivian, a failed electric vehicle start-up.
And yet, the company paid roughly the same amount in federal income tax as it did in 2021: $2.18 billion in 2022 compared to $2.13 billion in 2021.
Why would Amazon, the cheapest among the Silicon Six, decide to start paying what it owes while being firmly in the red? Perhaps it decided to turn over a new leaf, live a life of honest trade and charity. Perhaps it recognized the need for better national infrastructure and was willing to do what it took to fund the endeavor.
Perhaps there are benefits it could gain from paying its taxes properly that would give it more money than if it tried to avoid taxes entirely.
According to Investopedia, tax deferrals reduce a company’s taxable income by giving relief to companies when they overpay. In 2021, Amazon received no deferrals by paying $2.13 billion in federal income tax — in fact, it was expected to pay a provision tax of $155 million on top of its payment.
In 2022, Amazon received $6.9 billion in deferred federal taxes, significantly alleviating its domestic profit loss. This deferral would also fully make up for the money Amazon lost investing in Rivian, which amounted to $5 billion in 2022.
“Many have previously observed that contrived financial arrangements are at the heart of Amazon’s success,” the Silicon Six report concluded, “and this continues to be the case today.”
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