Friday, February 7, 2020

Amazon 2019, ITEP and its wake

ITEP published another erroneous and biased article about Amazon's income taxes, this time for 2019. I wrote about ITEP's reporting of 2018 results in December, 2019. This latest report asserts that Amazon paid only $162 million in U.S. federal income tax in 2019, an "effective" rate of only 1.2% of its U.S. income before tax of $13,285 million.

1. The $162 million is not income taxes paid; it is part of income taxes accrued in accordance with GAAP accounting principles and practices.
2. Amazon's 10-K page 63 clearly states it paid $881 million U.S. federal income tax in 2019. The author ignored it. 881/13,285 =  6.6%.
3. The author also ignored the other part of Amazon's 2019 GAAP provision for income tax, $914 million. Thus the "effective" tax rate was (162 + 914)/13,285 = 8.1%, not 1.2%!
4. The author says, "The company reports that it deferred $914 million of federal taxes to future years." This is wrong and backwards. The $914 million on page 64 of the 10-K is not deferred from 2019 to future years; it was deferred from past years to 2019. What the author describes goes on a balance sheet, not an income statement.

To illustrate, suppose Company X spent $500 million on capital equipment in 2018, GAAP requires spreading the cost over 5 years, but the IRS allowed all of it to be deducted in 2018. GAAP allowed deducting only $100 million in 2018. So $400 is deferred, with $100 million deductible each year 2019-2022. The tax effect is a tax rate times $100 million, or $21 million if the tax rate is 21%. So $21 million goes to the deferred part of Company X's 2019 provision for income taxes. Amazon's $914 million deferred income tax provision for 2019 is akin to Company X's $21 million for 2019.

Losses carried forward from earlier years may also affect a deferred provision for income tax. It appears to have reduced Amazon's 2019 provision by $34 million.

CNBCYahoo Finance, and The Verge parroted ITEP's report. I suspect Bernie Sanders will parrot it on the campaign trail, too.


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