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Rep. Alexandria Ocasio-Cortez and Sen. Bernie Sanders
Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez slammed Amazon for getting a federal tax refund despite booking billions in profit the last two years.
A close look at Amazon’s AMZN, -0.86% finances shows the Vermont independent and Bronx Democrat will have more to get upset about, because the internet giant has billions of dollars in various credits it could apply to offset future taxes as well.
As of Dec. 31, Amazon had federal operating loss carryforwards of $627 million, foreign balances of $7.8 billion, and state balances of $919 million.
Net operating loss carryforwards are created when a company’s deductions for the year are more than its income. Companies can use a federal tax loss carryforward by deducting it from their income in another year or years.
If not utilized, a portion of the federal, foreign, and state net operating loss carryforwards will begin to expire — some as early as the end of this year — which means you can expect to see Amazon report at least enough net income in 2019 to take advantage of the foreign and state net operating loss carryforwards rather than allow them to expire unused.
Amazon also has tax credit carryforwards of approximately $1.7 billion and federal capital loss carryforwards for income tax purposes was approximately $261 million. A portion of those tax credit carryforwards will begin to expire in 2022.
Sanders, who may again seek the Democratic nomination for president, and Ocasio-Cortez reacted over social media this week to the revelation Amazon didn’t pay federal taxes on its hefty earnings.
Amazon made $16.8 billion in profits over the past two years but have paid ZERO in federal income taxes. In fact it got a $269 million tax refund.
Our job: Demand large corporations pay their fair share in taxes so that we can rebuild the disappearing middle class.
— Bernie Sanders (@SenSanders) February 13, 2019
Amazon is paying $0 in taxes on $11+ billion in profit.
$0 for schools.
$0 for firefighters.
$0 for infrastructure.
$0 for research and healthcare.
Why should corporations that contribute nothing to the pot be in a position to take billions from the public? https://t.co/IdsuKaVOTU
— Alexandria Ocasio-Cortez (@AOC) February 14, 2019
Left unsaid was that Amazon refund is because of credits earned during several years of losses, and others baked in the tax code that every public company including Amazon can take full advantage of. Amazon still had to set aside $565 million for future federal income taxes due, and make an overall $1.2 billion net tax provision that reduced its 2018 net income.
Amazon did pay out $1.184 billion in cash for state, local and international taxes due for 2018.
The criticism was sparked by a report published by the Institute on Taxation and Economic Policy, a non-profit, non-partisan tax policy organization.
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ITEP and Sanders are correct when they say Amazon nearly doubled its profits to $11.2 billion in 2018 from $5.6 billion in 2018 and, didn’t spend any cash for U.S. federal taxes in either year. In fact, the company got a tax refund both years, $129 million in 2018 and $137 million in 2017.
Amazon also deposited 250 million euros into escrow in March 2018 as result of a decision by the European Commission that tax authorities in Luxembourg did not comply with rules on state aid when dealing with Amazon between May 2006 through June 2014.
Amazon benefitted greatly from the Tax Cuts and Jobs Act of 2017 and recorded a provisional tax benefit at the end of 2017 for the impact of Trump’s tax reform of approximately $789 million. Amazon had a significant amount of federal deferred tax liabilities at the time. As a result, the permanent reduction in the U.S. statutory corporate tax rate to 21% from 35%, forced a remeasurement of what would be due for those liabilities, resulting in a positive impact to net income.
See also: The vast majority of reported company earnings, except Amazon’s, are not fully audited
Deferred income tax assets and liability balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.
However, Amazon recorded a valuation allowances against deferred tax assets, in particular associated with international losses, since they may never realize any related tax benefit. That means they have already effectively written off a portion of those assets and taken a hit against net income after determining they will likely never be able to take advantage of these credits.
In 2017 they also recognized an estimated charge to tax expense of $600 million to record a valuation allowance against net deferred tax assets related to the Luxembourg ruling.
See also: Money-losing companies could take advantage of tax law’s 2018 start date
Read: With deferred liabilities, Verizon will get earnings benefit from tax bill
ITEP wrote that Amazon’s 2018 annual report revealed that, instead of paying the new statutory 21% federal income tax rate in 2018, its effective tax rate was -1% because of the refund of $129 million. ITEP says the refund is “partly due to various unspecified “tax credits” as well as a tax break for executive stock options.”
The “tax credits” Amazon takes advantage of are not unique to it and are not “unspecified.”
Amazon enjoys tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions that are benefits of the tax code available to every public company. Those benefits can be utilized to reduce its U.S. taxable income.
The 2017 tax law enhanced and extended the option to claim accelerated depreciation deductions by allowing full expensing of qualified property, primarily equipment, through 2022. This TCJA largesse is available to every corporation under the new law.
A spokeswoman from Amazon did not reply to a request for comment.
