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The Journal Gazette

Friday, March 30, 2018 11:30 am

Fact check: Trump's claims about Amazon's cost to taxpayers

SALVADOR RIZZO | Washington Post

"I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!" -- President Donald Trump, in a tweet, March 29, 2018

Trump is no fan of Amazon, and he often broadcasts this on Twitter.

It's well established that the online retail giant has grown at the expense of brick-and-mortar shops. But is Amazon paying little or no taxes to states and local governments? Is it causing the U.S. Postal Service to bleed money?

Two things before we dive in: The Washington Post has been owned since 2013 by Jeff Bezos, the chief executive of Amazon, as a personal investment via Nash Holdings LLC. And Trump's tweet came days after Axios reported the president has discussed changing Amazon's tax treatment, arguing the company gets too many breaks from taxpayers.

The facts

Founded in 1994, Amazon did not begin to charge sales taxes to its customers until around 2011, in a few states. Now the company charges sales taxes in the 45 states that have them and the District of Columbia. Some states require this by law; in other states, Amazon does it voluntarily. (One caveat here: Amazon charges state but not local sales taxes in some places, according to the left-leaning Institute for Taxation and Economic Policy.)

This applies only to what Amazon sells directly to online shoppers. Third-party vendors that use Amazon's website to sell their own merchandise account for about half of sales, but the company requires them to charge sales taxes only in Washington state, and beginning April 1, in Pennsylvania. In other states, Amazon doesn't require but offers to collect sales taxes for third-party vendors.

Asked about Trump's tweet, an administration official pointed to this tax-free setup for most third-party vendors using Amazon's website.

"Amazon doesn't collect sales taxes on goods sold by third-party affiliates, unless it is contracted to do so by those sellers," the official said. "In the case of product sales across state lines, sales taxes are collected only if that business has a significant presence, like a factory or warehouse, in that state."

It's important to note that none of this is part of Amazon's own tax burden. The company collects the sales tax and remits it to the state and local governments.

But the dynamics here are important, because in places where it does not collect sales taxes, Amazon typically enjoys a competitive edge over traditional retail establishments, and local governments would not generate revenue from its sales.

Amazon itself paid $957 million in income taxes worldwide in 2017, according to a regulatory filing. It paid $412 million in 2016 and $273 million in 2015. Separate figures in the report show it was expecting to pay $100 million to $200 million in taxes at the U.S. state level in 2017.

Amazon's warehouses and other facilities require lots of jobs, which is a big reason why states and local governments have given the company generous tax breaks and other perks. A 2016 report found that Amazon got at least $613 million in subsidies from local governments for its package facilities from 2005 to 2014, plus another $147 million for its data centers.

On top of this, the company may get a historic tax-break package when it chooses a site for its second headquarters.

Newark, New Jersey, for example, has offered $7 billion in state and local tax breaks as part of its bid. Chicago has offered at least $2 billion.

A representative for Amazon declined to comment except to say the company collects billions of dollars in sales taxes every year.

"Amazon for many years reinvested all its profits into expansion, with the result that it paid little or no taxes because taxes are calculated based on profits," said Joseph Bishop-Henchman, executive vice president of the Tax Foundation. "However, in the last few years, it has expanded its warehouse footprint and now pays considerable federal taxes as well as state income and property taxes."

Ironically, Trump's signature legislative achievement, the Tax Cuts and Jobs Act, lowered the corporate tax rate from 35 percent to 21 percent and gave Amazon a $789 million windfall in 2017.

Because of several tax moves, Amazon ended up paying no federal taxes in 2017, according to an ITEP analysis.

"During the previous five years, Amazon reported U.S. profits of $8.2 billion and paid an effective federal income tax rate of just 11.4 percent," wrote Matthew Gardner, an ITEP senior fellow. "This means the company was able to shelter more than two-thirds of its profits from tax during that five-year period."

The other prong to Trump's criticism concerns the U.S. Postal Service. Partly because of the large volume of packages it sends, Amazon gets discounted shipping rates from the post office. According to Josh Sandbulte, the co-president of a money-management firm that owns FedEx stock, this arrangement effectively subsidizes Amazon at a rate of $1.46 per box.

But Amazon says the relationship is mutually beneficial. In 2017, the company noted the Postal Regulatory Commission "has consistently found that Amazon's contracts with the USPS are profitable," The Washington Post's Brian Fung reported.

The Postal Service saw a net loss of $2.7 billion in fiscal 2017, driven by factors such as declining flat-mail volume and pension and health benefit liabilities. But its line of business for shipping and packages has been a bright spot in recent years, with revenue increasing by $2.1 billion, to $19.5 billion, in fiscal 2017.

The Postal Service declined to comment on Trump's tweet.

To comply with federal law, the Postal Service in 2017 had to generate at least $1.6 billion in income from its "competitive nonpostal services," which includes Amazon package deliveries. Instead, it generated $6.8 billion, according to a 2017 compliance report.

Amazon uses the Postal Service for the last mile or so of a package's journey. The Postal Service in a recent regulatory filing described such arrangements with online retailers as a synergy.

"Our shipping and packages business has continued to show solid revenue and volume growth as a result of our successful efforts to compete in shipping services, including 'last-mile' e-commerce fulfillment markets and Sunday delivery," the filing says.

"Volume also experienced end-to-end growth as consumers continued to utilize online shopping, which provided a surge in package volume with a record number of packages delivered during the calendar year 2016 and 2015 holiday seasons. To accommodate the surge in volume and to avoid service disruptions during the holiday season, we have increased Sunday delivery service for some of our customers in limited U.S. markets and are again adding employees for the holiday season." (Note how the Postal Service says it added Sunday delivery service in some cities to meet demand.)

The Postal Service could charge Amazon higher rates, but first, Trump would need more appointees on the Postal Regulatory Commission, which lacks a quorum. Three nominees are awaiting hearings in the Senate.

The Pinocchio test

Amazon's tax strategies have rankled the president, but you would know this only from his tweets and comments because the tax bill he signed in 2017 gives the online retailer a $789 million windfall.

Trump says Amazon pays "little or no taxes" to state and local governments, but the facts say otherwise. The online retail giant clearly leverages many tools to keep the tax man at bay. That doesn't erase its state and local tax bills. These are larger than Trump allows.

The president says the United States loses money because Amazon relies on the Postal Service for the last leg of its package deliveries. The Postal Service reported a net loss in 2017, and it does offer Amazon cut rates. But that's not the whole story. In fact, e-commerce deliveries are one of the post office's few thriving lines of business.

Amazon is one of the biggest companies in the world, and its financials are fair game for critics, but Trump's distortions don't add up and are worthy of Three Pinocchios.

Three Pinocchios