Amazon Would Likely Pay Even More Tax Under Biden Plan

In public-policy debates, Amazon’s taxes have often been reduced to allegations that it pays nothing, and that has long been an oversimplification. Still, Democratic control of the House, Senate and White House could matter a lot for the company. If President Biden’s proposed minimum tax had been in place for 2020, Amazon’s cash taxes would have been roughly double what it reported, according to an estimate from Martin Sullivan, chief economist at Tax Analysts, a nonprofit publisher.

Amazon’s current U.S. tax expense, an accounting measure that is the closest approximation for its 2020 U.S. tax bill, was $1.835 billion on $20.2 billion of income, according to the annual financial statement filed this week with the Securities and Exchange Commission. That comes to a rate of about 9%, less than half of the 21% U.S. corporate rate but far higher than the equivalent 1.2% rate that Amazon reported for 2019 or its negative rates from 2017 and 2018.

The reason Amazon pays less than 21% stems, in part, from decisions by lawmakers. Amazon reported $639 million in tax credits, which companies can get for favored activities such as conducting research or investing in renewable energy. It also got $372 million from a break related to foreign sales from the U.S. and $1.1 billion in benefits from the way its workers’ stock-based compensation is treated.

“Our U.S. federal taxes are a reflection of our continued investments, how we compensate our employees and current U.S. tax law,” the online retailer and cloud-computing company said in a blog post on Wednesday. The company hasn’t taken a position on Mr. Biden’s plans.

Amazon’s low reported tax expenses in earlier years, along with similar figures from other companies, helped spur Democratic proposals for minimum taxes that would affect them.

“Half a loaf is better than none,” Matt Gardner, senior fellow at the left-leaning Institute on Taxation and Economic Policy, said of Amazon’s higher tax costs for 2020. However, he said, “We may still be in a place where the current tax system isn’t really meaningfully laying a glove on Amazon in the long run.”

During the campaign, Mr. Biden cited Amazon as he called for a 15% minimum tax on large companies that would be applied to their income as reported on financial statements. That is in addition to his proposed 28% corporate tax rate and higher taxes on U.S. companies’ foreign income.

Under Mr. Biden’s plan, companies with profits over $100 million would have to top up their tax rates to 15%, after allowances for foreign tax payments and past operating losses. The campaign projected that the minimum tax would raise $400 billion over a decade, though independent estimates were lower. The result depends on how any eventual law is written and how it interacts with other policy changes.

For 2019, Amazon would have paid about $1.3 billion in additional taxes under the Biden minimum tax, according to Mr. Sullivan’s estimates. For 2020, it would have owed between $1.6 billion and $2.1 billion because of the minimum tax, depending on whether Congress raises the corporate tax rate to Mr. Biden’s proposed 28% or keeps it at 21%.

Companies that could have owed more than $1 billion a year on average under the minimum tax included AT&T Inc. and Berkshire Hathaway Inc., according to Mr. Sullivan.

Critics warn that a minimum tax could undercut tax incentives for capital investment, renewable energy and low-income housing. And they say that basing taxes on financial-statement income transfers power from Congress to accounting regulators, who determine how corporate finances are reported.

If lawmakers have concerns about particular tax breaks, they should change those instead, said Steve Rosenthal, a senior fellow at the Tax Policy Center in Washington.

“Creating a minimum tax introduces a lot of complexity and administrative burden without, in my view, an offsetting policy benefit,” he said.

Congress, focused for now on a coronavirus-relief bill, isn’t likely to raise corporate taxes soon, reserving tax increases for subsequent fiscal legislation.

But Mr. Biden is likely to detail his plans later this year, and the Treasury Department has hired several tax-law professors who have argued for years that U.S. companies pay too little. They would be tasked with turning those campaign-trail ideas into policy.

Alexandra LaManna, a Treasury Department spokeswoman, declined to comment on the development of the minimum-tax plan.

There is no perfect way to measure a company’s tax rates. That is partly because corporations aren’t required to report enough details publicly for full analysis. And it is partly because definitions of income and other details on financial statements are different from those used for taxes.

For example, a company that settles a 2015 tax dispute in 2020 will record any change in its expected payments during 2020, so it could be conflated with 2020 tax costs on its annual financial statement. Large capital investments typically yield significant tax deductions up front, while accounting costs are spread over the life of an asset.

Write to Richard Rubin at [email protected]