Does Amazon Pay Taxes in 2023? A Breakdown for Amazon Sellers
As a successful Amazon seller for over 10 years, I‘m often asked about Amazon‘s corporate tax situation. Does the ecommerce giant actually pay taxes? And how does its tax minimization impact the competitive landscape for sellers?
In this 2800+ word guide, I‘ll leverage my experience to provide sellers with a detailed look at Amazon‘s tax practices. You‘ll learn how much tax Amazon pays, where they pay it, the loopholes used, and how this affects you as a seller. Let‘s dive in!
In short: Amazon utilizes credits, deductions, and incentives to pay an effective federal income tax rate far below the 21% corporate baseline. But its tax minimization strategies also indirectly disadvantage third-party sellers who can‘t access the same large-scale loopholes.
A Seller‘s Perspective on Amazon‘s Taxes
As an experienced FBA seller, I closely follow Amazon‘s business practices and how they influence the marketplace. While Amazon‘s tax avoidance methods are legal, we must operate on an unlevel playing field.
Amazon can make large capital investments in warehouses, infrastructure, and R&D that significantly offset their taxes. As a small seller, I cannot. This lets Amazon reinvest that saved tax money into further undercutting sellers on pricing, shipping speed, and more.
Understanding Amazon‘s tax situation provides key context around their competitive advantages. Now let‘s analyze the numbers…
How Does Amazon Pay So Little Tax?
In 2020, Amazon reported $20 billion of US income but paid just $1.8 billion in federal taxes. That‘s an effective rate of 9.4%, far below the 21% corporate tax baseline.
So how does Amazon lower its tax bill so drastically? Here are the main factors:
Tax Credits
Amazon aggressively pursues tax credits:
- R&D credit – For investments in research and product development
- Capital investment credits – For building warehouses, data centers, etc.
- Sustainability credits – For initiatives like renewable energy and recycling
These amounted to $639 million in tax savings for Amazon from 2018-2020.
Operational Deductions
Amazon deducts normal business expenses like:
- Employee wages and stock compensation
- Cost of goods sold
- Depreciation of property and equipment
- Interest paid on debt
These reduce the company‘s taxable income significantly.
Net Operating Losses
When deductions exceed income, companies can "carry forward" these net operating losses to offset future tax bills.
As of 2021, Amazon had $8 billion in US carryforward losses available. This essentially represents deferred tax savings.
Stock Option Tax Deductions
Giving employees stock options helps Amazon lower its taxable income.
From 2018-2020, stock option deductions saved Amazon $1.8 billion in federal tax.
Where In The World Does Amazon Pay Taxes?
While the US is Amazon‘s largest tax jurisdiction, the company pays income taxes worldwide:
United States – The majority of Amazon‘s taxes are owed to the US government. But the effective rate is lowered by credits and deductions.
Canada – Amazon has fulfillment centers across Canada and pays federal and provincial income taxes.
Mexico – With over a dozen logistics sites, Amazon pays corporate tax in Mexico.
United Kingdom – Amazon has over 50 UK facilities and pays the country‘s 20% corporate tax on income.
Europe – In markets like Germany, Italy, Spain, and France, Amazon pays tax rates from 15% to over 30%.
Asia – Amazon pays corporate taxes in Japan, China, India, Australia and other Asian countries. Rates vary from 17% to 30%.
In total, Amazon paid $2.4 billion in international income taxes plus $1.8 billion in US federal tax during 2020.
Country | 2020 Income | Tax Paid | Effective Rate |
---|---|---|---|
United States | $20B | $1.8B | 9.4% |
International | $13.1B | $2.4B | 18.5% |
Total | $33.1B | $4.2B | 12.7% |
So while the US has lower rates, Amazon does pay significant tax abroad. But credits and deductions lower the rates in both.
Amazon‘s Taxes: A Historical Perspective
Let‘s look at how much tax Amazon has paid over the past 5 years:
Fiscal Year | US Income | Expected 21% Tax | Tax Paid | Effective Rate |
---|---|---|---|---|
2017 | $5.6B | $1.2B | $0 | 0% |
2018 | $10.1B | $2.1B | $0 | 0% |
2019 | $13.9B | $2.9B | $162M | 1.1% |
2020 | $20B | $4.1B | $1.8B | 9.4% |
2021 | $24B | $5B | $2.5B | 10.3% |
Here are the key takeaways:
In 2017 and 2018, Amazon paid $0 in federal income taxes and even got refunds.
From 2017-2019, the effective rate was just 3.5% on over $29 billion in US income.
In 2020 and 2021, increased profits pushed the rate over 9%, but still far below the 21% baseline.
Credits and deductions enabled over $5 billion in avoided US taxes over the 5 years.
So while Amazon has paid some recent federal tax, historical data shows an effective rate still nearly half the statutory level.
Impact of Amazon‘s Tax Avoidance on Sellers
Amazon‘s tax minimization indirectly hurts third-party sellers:
Reinvestment – Amazon pours tax savings into logistics, tech, and undercutting sellers. This includes the $7.2 billion in subsidies received from 2018-2020.
Unlevel playing field – Unlike Amazon, sellers typically pay close to the full corporate tax rates. Our businesses can‘t access the credits and deductions Amazon does.
Increased fees – Amazon has slowly raised fees like referral and FBA fees to sellers. Their tax savings help subsidize keeping fees low for customers.
Low prices – When sellers calculate prices, we must build in our tax costs. Amazon can price lower since they are not paying the full tax burden.
While sellers have little recourse, understanding Amazon‘s tax advantage provides key marketplace context.
Can Sellers Also Pay Lower Taxes?
While not to the same degree as Amazon, there are some tax minimization strategies and credits sellers can utilize:
Claim the R&D tax credit for developing new products and technologies.
Deduct business expenses like mileage, travel, supplies, and your home office.
Write off inventory costs as Cost of Goods Sold.
Depreciate the value of assets like vehicles, computers, and equipment.
Utilize bonus depreciation to immediately deduct the full cost of qualified assets.
Expense startup costs like license fees and organizational expenditures.
Carry forward net operating losses from unprofitable years to offset future income.
Take the qualified business income deduction which allows up to 20% of pass-through income to be deducted.
Now seller tax credits and deductions won‘t match what Amazon does. But properly claiming all available write-offs can help lower your tax bill. Just be sure to maintain good records and only claim valid tax breaks.
Amazon is Not Alone: Other Corporations Also Skirt Taxes
While Amazon garners attention for paying low taxes, they are far from unique in doing so. Many other major US companies minimize tax through credits and deductions:
FedEx – Over $11 billion in US income from 2018-2020. Effective tax rate below 1%.
General Motors – Reported $0 in federal tax on $4.3 billion of US income in 2018. Had carryforward losses to offset.
Occidental Petroleum – Had a tax refund of $195 million in 2020 despite earning $2.5 billion in US profit.
Netflix – $1.9 billion in US income in 2020 but paid $0 in federal taxes by using past losses.
This avoidance is typically legal and shows deeper issues with credits and loopholes within the tax code itself. But the end result is many corporations pay far below the stated corporate rate.
Final Thoughts
As a seller, it can be frustrating to watch Amazon lower its tax obligations while we pay our fair share. But by utilizing available tax deductions along with understanding Amazon‘s tax advantages, we can strategize accordingly.
The most important takeaway is that Amazon‘s tax minimization enables further investment and disadvantages for sellers. This provides critical context around their competitive capabilities.
Overall, I hope this transparent look at Amazon‘s tax situation from a seller perspective was helpful. As experts in the ecommerce space, we must be informed on factors impacting the marketplace, even complex ones like taxes.