Amazon.com, Inc. (NASDAQ: AMZN) shares dipped during premarket trading when President Trump accused the e-commerce giant of hurting local retailing concerns and snipping jobs by non-payment of taxes. The President of the United States, through his tweet, echoed earlier characterizations of Amazon as a kind of 'no-tax' monopoly. He alleged that the online company does not pay any kind of 'Internet tax'.
Amazon pays taxes
President Trump is totally wrong on this matter. Amazon does pay taxes. The e-retailing company, in its last annual report submitted to Securities and Exchange Commission (SEC), said that it paid about $177 million as income tax in 2014, about $273 million in 2015, and about $412 million in 2016. It was discovered by Standard & Poor Global Market Intelligence that Amazon made payment as the tax on a median tax rate of about 13 percent in the years between 2007 and 2015. This amount is much smaller than S&P 500 stock average coming to 26.9 percent. It is also much lower than the 35 percent corporate tax rate as set by the Federal Reserve. The amount, however, gels with the proposed rate of 15 percent by President Trump.
The President of the United States would have been correct in his assertion that Amazon did not pay taxes- if it was a few years before. The e-retailer did not pay much tax until 2011. According to Carl Davis, who works as the research director of Institute on Taxation and Economic Policy, a left-leaning institution, there can be no doubt that Amazon makes complete use of its ability to avoid collecting sales tax so that it gains an undeniable competitive advantage. This criticism, however, cannot be leveled towards the e-retailer anymore.
Tax and physical presence
In 1992, the US Supreme Court ruled that a state can ask retailers to collect sales tax if they are physically present in the state. It follows that an e-commerce company located out of a particular state having no distribution center or store present in that specific state will have no obligation to levy sales tax on its customers. A number of states have written wide laws, termed 'Amazon laws', which try to balance this disparity between the brick and mortar businesses and the e-commerce ones. In fact, Amazon was taking sales tax from its customers in five states. It was also noted by Davis that the e-retailer slashed ties with a number of in-state businesses so as to avoid the collection of sales tax in a number of states from 2009 to 2014.