Politics

Why Doesn't Amazon Pay Taxes?

Amazon’s decision to cancel the plans to construct its HQ2 in New York City in February 2019 sparked an older argument as to why the Amazon does not pay taxes. Mona Chalabi, a data journalist, produced a graph showing the company’s increasing profits against its taxes for about nine years. The comparison ignited a lot of arguments, although it was misleading.

Amazon paid about a billion dollars in income tax in 2017 and over $1.16 billion in 2018, which accounted for international, state, and local taxes. However, the company didn’t pay federal tax in both 2017 and 2018.

Why Doesn’t Amazon Pay Federal Taxes?

Amazon, just like numerous American companies, enjoys various tax credits. The company’s zero federal tax bill is stemmed from the 2017 Republican tax-cuts, multiple tax credits, and carrying forward losses from the previous non-profitable years. Some of the tax credits enjoyed by Amazon include:

1. Investment in Equipment, Plant, and property

Amazon’s investment in equipment, plant, and properties makes them eligible for tax credits. Numerous American cities benefit from the company’s investment in terms of job creation and real estate. The company’s investment in Property, Equipment, and Plant had grown to about $60 billion by 2018.

2. Investment in Research and Development

Amazon enjoys tax credits because they have invested heavily in research and development. The company topped the list of American companies that have invested in research in 2017 after spending $22.6 billion, followed by Alphabet at $16.6 billion.

3. Employee Stock Compensation

The third driver of their tax break is giving their employees stock-based compensation instead of cash compensation. Tax deduction for Amazon increases as their stock grows. Employee stock compensation helps generate an incentive for the employees to get the best possible return for their investors.

 

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