How did Amazon manage to pay zero Federal income tax?

Amazon is one of the top five companies to reach a trillion-dollar valuation and that makes the founder Jeff Bezos, the richest man in the world. A few weeks ago, I had published an article about how income equality is essential to move towards a more sustainable society, this article is an extension of it. Amazon today has one million prime subscribers, who when put together will make it the 14th largest country in the world! Amazon has built an ecosystem around you such that it attracts you to subscribe to its services and making you hooked on to it.

The company which is the second biggest employer in the world after Walmart is expected to pay a huge amount income tax. There is a common norm of paying higher Federal income taxes for companies who make huge income so that higher-earning organizations contribute more to the nation. Amazon provided employment opportunities to over 9 lakh people is expected to pay high-income taxes.

In 2018, Amazon made a profit of more than 11.3 billion dollars but this massive company legally paid no Federal income tax and on top of that they got a $129 million tax rebate. There are several reasons for escaping the tax payment by deductions and it is not as complicated as you thought let me explain it to you:

  • Research and Development

This works in a simple manner if a company is investing in research and innovation which adds to the country’s growth so the government deducts expenditure to promote research. Amazon claimed around 7% out of tens and thousands of revenue it spent on R&D giving the reason that country will move forward in innovation. In 2018, Amazon almost saved 1.4 billion dollars in R&D credits due to a huge investment in AI-assisted logistics.

  • Reinvesting Revenues

Amazon’s business model is designed in such a way that it reinvests a major part of its revenue back into its business to promote business expansion keeping long term in mind. For several years now Amazon has been self-funding as the company generates significant cash flow. It has reinvested in itself such a way that it made no profits for several years and this helped Amazon to carry forward losses to the coming years to get tax deductions. In 2018, $627 million was carry forwarded.

  • Stock-Based Compensation

Often cooperate company pays its senior employees with its own company stocks rather than hard cash. Amazon has been doing that for several years not merely because they are concerned of employee ownership but that saves them from paying a huge amount of tax. Usually, companies buy their own stocks and pay it to the employee but that’s not the case for Amazon. Instead, Amazon creates stocks and that strategy works for them because stock price of amazon keeps increasing the market.

There is no doubt that Amazon has been technologically advancing the human race and optimizing the process, as they say along with the power to influence the millions of lives comes huge responsibility. Amazon needs to take social responsibility and give back to society so the entire human race progresses. To progress organically manner, income equality is essential and that needs huge cooperates like Amazon to pay taxes!

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