The nominal rates were 35% in 2017 and 21% in 2018

Posted on: February 16, 2019 at 18:31:43 CT

Various news stories have indicated that Amazon used various tax credits, most likely the Research and Development Credit, to fully offset its 2017 and 2018 tax liability. Thus, its effective rate in 2017 and 2018 was zero.

Note that tax credits have been acted by Congress over the years to influence taxpayers to engage in activities Congress has deemed desirable, i.e. the education tax credits for college students and their parents. Most tax provisions are enacted to influence behavior in some fashion.

You are apparently referring to stories that Amazon had deferred the recognition of income from prior years to 2018 and therefore, this income would be taxed at 21% rather than 35%. That would be true for any corporation that had deferred the recognition of income.

The Tax Reform Act reduced the corporate rate in order to bring it into line with corporate rates in other nations. The argument was (1) the higher U.S. rate put American firms at a competitive disadvantage and (2) caused U.S. firms with overseas operations to leave foreign earnings in overseas rater than bring them into the U.S.

The Tax Reform Act did not change the various provisions that affect when a corporation recognizes income, that is it did not increase Amazon's ability to defer the recognition of income. Therefore, the benefit enjoyed by Amazon is simply the general rate reduction enjoyed by all corporations.