For this discussion, I’ll use Amazon as an example because they received the most scrutiny lately.
I want to start by saying it’s a myth that Amazon pays NO taxes. It is true that they have paid no federal taxes in the last 2 years but they have paid payroll taxes, local taxes, state taxes and international taxes.
Source – Amazon’s 2018 financial statement
According to Forbes, this is what three main drivers of Amazon’s tax breaks –
Investment in Research & Development. Amazon invests heavily in research and development and therefore benefits from the tax credit. In 2017, as Recode stated, Amazon topped the list of U.S. companies in R&D spend, at $22.6 billion. The next closest was Alphabet at $16.6 billion. Many of Amazon’s innovations have been birthed from this investment.
Amazon’s investment in property, plant, and equipment also makes it eligible for tax credits. Cities can benefit from Amazon’s investment in real estate and job creation (benefits New York City could have enjoyed). Amazon’s PPE expenditure has steadily increased over the last five years, netting to approximately $60 billion as of the end of last year.
A move away from cash compensation to stock-based compensation for employees is the third driver of its tax breaks. Tax deductions increase as the stock increases. While this can certainly create adverse incentives, it is important to assess the benefits it creates relative to the cost. While such a tax policy can introduce misaligned management incentives, it also generates incentives for management to drive the best possible return for investors.
The second point above is where most of the tax incentives come from the state government. This works by a state offering certain tax incentives for moving an Amazon HQ to a city because it will bring X amount of jobs and revenue. IMO this is usually a good thing for whatever city they’re moving too most of the time because it does bring jobs to the community. However, I’m sure there is cases where the incentives work better for Amazon and not people in the community.
If people don’t want to companies/corporations to pay no federal taxes, they need to stop attacking the companies and their smart accountants that take advantage of the tax laws. I guarantee 99% of the people here would take a tax advantage if they could legally do so. Instead, they should be fighting to change the tax incentives that allow this to happen. They should be doing research and finding the tax incentives that Amazon is receiving and if they disagree then they should be opposing the policy. Not the company taking advantage of incentives that were offered to them. It’s literally pointless to go after them and it doesn’t do anything to solve the real root of the problem.
I know Amazon is facing scrutiny for many issues but I want to try to keep this discussion specifically related to taxes and not things like working conditions and all that.