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.
CNBC, Yahoo Finance, and The Verge parroted ITEP's report. I suspect Bernie Sanders will parrot it on the campaign trail, too.
Showing posts with label Amazon. Show all posts
Showing posts with label Amazon. Show all posts
Friday, February 7, 2020
Monday, November 25, 2019
Amazon income taxes addenda
I did a Google search for these terms: Amazon income tax paid 2018. The Snopes article I commented on Nov. 21 was only one of the many results. Some of the more well-known names with stories about Amazon’s 2018 income tax were: USA Today, Yahoo Finance, CNBC, CNN, Business Insider, New York Times, The Washington Post, The Wall Street Journal, Forbes, Fortune, The Guardian, HuffPost, National Review, Fox Business.
The ITEP blog, which I referred to on Nov. 21, seems to have prompted this slew of stories. Most of them refer to ITEP. Like I said then, ITEP cited GAAP accounting numbers from Amazon’s 10-K. It missed or ignored the nearby taxes paid numbers, despite the article being allegedly about taxes paid.
I didn’t take the time to completely read all of the stories, but most didn’t say much more than echo ITEP – Amazon had a $11.2 billion profit but paid no income taxes in 2018. The Wall Street Journal (paywalled), National Review, and Forbes were exceptions. Forbes was an exception as follows:
1. Despite the title “Why Amazon Pays No Taxes,” the story says Amazon paid income taxes for 2017 and 2018. “In 2017, Amazon paid close to $1 billion in income tax. In 2018, the amount jumped to $1.18 billion, accounting for local, state, and international taxes.” Nevertheless, a bit later it says, “It is true that in the last two years, Amazon did not pay federal taxes.” Was all of the $1.18 billion local, state or international taxes and none U.S. federal income taxes? (The expression "accounting for" is ambiguous.) I much doubt it. To know one would need to see Amazon’s IRS Form 1120, which is a private matter between Amazon and the IRS.
2. It explained why Amazon pays little or no taxes. The big reason is that Amazon uses what could be profits to reinvest in its business and hire more employees. Either creates an expense which reduces profit and taxable income.
3. Amazon’s employees pay income taxes.
The Forbes story gave no indication how much Amazon employees pay in federal income taxes. Payscale.com says the average salary at Amazon is $102,000. Wikipedia says Amazon has 647,500 employees. Assume a 15% average income tax rate. 647,500* $102,000 * 0.15 = $9.9 billion. (In addition, the employees and Amazon combined pay roughly the same amount of payroll taxes to Social Security and Medicare.) That’s a rough estimate but 88% of Amazon’s 2018 profit. It might be higher, since employees who received and exercised stock options would likely be taxed at a rate higher than 15%. Amazon’s 10-K says stock-based compensation reduced its calculated tax by about $1 billion. The recipients likely paid more.
I read The Washington Post story, since Amazon’s CEO Jeff Bezos owns the Post. The story gave a link to the ITEP blog post and repeated the $11.2 billion in profits but $0 federal income tax paid. It quoted an Amazon spokeswoman who said Amazon paid $2.6 billion in corporate tax over the last three years, which agrees with the 10-K. The author otherwise ignored, missed, or didn’t even look at what the 10-K said about taxes paid.
The ITEP blog, which I referred to on Nov. 21, seems to have prompted this slew of stories. Most of them refer to ITEP. Like I said then, ITEP cited GAAP accounting numbers from Amazon’s 10-K. It missed or ignored the nearby taxes paid numbers, despite the article being allegedly about taxes paid.
I didn’t take the time to completely read all of the stories, but most didn’t say much more than echo ITEP – Amazon had a $11.2 billion profit but paid no income taxes in 2018. The Wall Street Journal (paywalled), National Review, and Forbes were exceptions. Forbes was an exception as follows:
1. Despite the title “Why Amazon Pays No Taxes,” the story says Amazon paid income taxes for 2017 and 2018. “In 2017, Amazon paid close to $1 billion in income tax. In 2018, the amount jumped to $1.18 billion, accounting for local, state, and international taxes.” Nevertheless, a bit later it says, “It is true that in the last two years, Amazon did not pay federal taxes.” Was all of the $1.18 billion local, state or international taxes and none U.S. federal income taxes? (The expression "accounting for" is ambiguous.) I much doubt it. To know one would need to see Amazon’s IRS Form 1120, which is a private matter between Amazon and the IRS.
2. It explained why Amazon pays little or no taxes. The big reason is that Amazon uses what could be profits to reinvest in its business and hire more employees. Either creates an expense which reduces profit and taxable income.
3. Amazon’s employees pay income taxes.
The Forbes story gave no indication how much Amazon employees pay in federal income taxes. Payscale.com says the average salary at Amazon is $102,000. Wikipedia says Amazon has 647,500 employees. Assume a 15% average income tax rate. 647,500* $102,000 * 0.15 = $9.9 billion. (In addition, the employees and Amazon combined pay roughly the same amount of payroll taxes to Social Security and Medicare.) That’s a rough estimate but 88% of Amazon’s 2018 profit. It might be higher, since employees who received and exercised stock options would likely be taxed at a rate higher than 15%. Amazon’s 10-K says stock-based compensation reduced its calculated tax by about $1 billion. The recipients likely paid more.
I read The Washington Post story, since Amazon’s CEO Jeff Bezos owns the Post. The story gave a link to the ITEP blog post and repeated the $11.2 billion in profits but $0 federal income tax paid. It quoted an Amazon spokeswoman who said Amazon paid $2.6 billion in corporate tax over the last three years, which agrees with the 10-K. The author otherwise ignored, missed, or didn’t even look at what the 10-K said about taxes paid.
Thursday, November 21, 2019
Snopes re Amazon income taxes
On November 19, 2019 the fact-checking website Snopes asked, Did Amazon Pay No Federal Income Taxes in 2018? Their answer was True. Link. About 14 months ago Snopes asked, Did Amazon Pay No Federal Income Taxes in 2017? Their answer was True. Link.
Snopes erred both times. I quote from the later article: "Though Amazon’s actual U.S. tax filings are not public, a broad overview of their overall tax burden can be found in their SEC 10-K filing. In 2018, the company made over $200 billion in sales, but paid no money to the U.S. government in the form of income tax (in fact, the government actually owed the company some $129 million as noted in parentheses in the chart below):"
I couldn't copy and paste here the chart from the Snopes article, but it shows "current" U.S. Federal taxes of -$137 million for 2017 and -$129 million for 2018. Snopes ignored the $565 million deferred tax provision for 2018. $565 - $129 = +$436. Importantly, except to Snopes, closely above and below those numbers say that the numbers are provisions for income taxes. The numbers are not what Amazon paid both years, but what were accrued both years following GAAP accounting rules. There can be big differences between the two, especially since the main corporate income tax rate was reduced from 35% to 21% effective 2018.
Indeed, Amazon's 2018 10-K belies Snopes' answering True both years. Regarding Amazon's U.S. federal income tax, the same page of the 10-K says, "Cash taxes paid, net of refunds, were $412 million, $957 million, and $1.2 billion for 2016, 2017, and 2018" (my bold). Alex Kasprak, author of both articles, apparently does not know the difference between provision and paid or between accrued and paid. He ignored or missed what Amazon paid.
This ITEP blog makes the same mistakes about Amazon's 2018 taxes. With a name like Institute on Taxation and Economic Policy, shouldn't it be more attentive to facts? With abettors like these, Bernie Sanders can lie "with authority" (link)!
The Snopes article adds that Amazon takes a tax deduction for the profits an employee gets from (exercising) stock options granted by Amazon. (Contra Snopes, the amount of the employee's salary need not exceed $1 million for this deduction.) The article says this like it is fishy, but current tax law allows it and there is an explanation. Suppose an X Corp employee's exercise price is $500 per share, and X Corp's share price at time of exercise and when the employee sells them is $1,500. To acquire the shares on the open market, the employee pays $500 and X Corp pays the other $1,000. The employee profits $1,000, and the $1,000 is taxable income for the employee. The $1,000 is a compensation expense to X Corp, like the employee's salary is.
The Snopes article adds that Amazon takes a tax deduction for the profits an employee gets from (exercising) stock options granted by Amazon. (Contra Snopes, the amount of the employee's salary need not exceed $1 million for this deduction.) The article says this like it is fishy, but current tax law allows it and there is an explanation. Suppose an X Corp employee's exercise price is $500 per share, and X Corp's share price at time of exercise and when the employee sells them is $1,500. To acquire the shares on the open market, the employee pays $500 and X Corp pays the other $1,000. The employee profits $1,000, and the $1,000 is taxable income for the employee. The $1,000 is a compensation expense to X Corp, like the employee's salary is.
Thursday, April 18, 2019
Bernie Sanders lies about Amazon income taxes
Bernie Sanders declared that Amazon paid no federal income taxes for 2018 (story).
He lied. I went to Morningstar to look at Amazon's financial data. Clicking on "All Financial Data" here reveals the relevant numbers:
Income before taxes $11,261 million
Net income $10,073 million
Provision for income taxes $1,197 million
Cash paid for income taxes $1,429 million
Bernie very likely lied about Netflix, too. Morningstar showed a $15 million provision for income taxes (on pretax income of $1,226 million), but did not show the amount of cash paid for income taxes. Anyway, from the story linked above: "A Netflix spokeswoman said in an email that it is "inaccurate to say that we paid $0 in federal income taxes in the U.S. in 2018"."
He lied. I went to Morningstar to look at Amazon's financial data. Clicking on "All Financial Data" here reveals the relevant numbers:
Income before taxes $11,261 million
Net income $10,073 million
Provision for income taxes $1,197 million
Cash paid for income taxes $1,429 million
The
provision for income taxes is a GAAP (Generally Accepted Accounting
Principles) accrual
amount
which includes adjusting for deferred or prepaid taxes. However, cash
paid for income taxes is obviously cash paid. 1429/11261 = 0.127, or
12.7%. That is not as much as one might expect based on the 21%
corporate rate, but it is nowhere near Bernie's lie that Amazon paid
zero taxes.
Bernie very likely lied about Netflix, too. Morningstar showed a $15 million provision for income taxes (on pretax income of $1,226 million), but did not show the amount of cash paid for income taxes. Anyway, from the story linked above: "A Netflix spokeswoman said in an email that it is "inaccurate to say that we paid $0 in federal income taxes in the U.S. in 2018"."
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