Income Taxes and Deferred Tax Assets for Amazon.com (AMZN)

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Amazon.com (AMZN)

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AMZN » Topics » Income Taxes and Deferred Tax Assets

This excerpt taken from the AMZN 8-K filed Feb 2, 2006.

Income Taxes and Deferred Tax Assets

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The Q4 2005 tax provision includes a tax benefit of $90 million, representing $0.21 of diluted earnings per share, resulting from a determination that certain of our deferred tax assets are realizable. Without this benefit our effective tax rate for financial reporting purposes would have been 43% in 2005, higher than the 35% statutory rate, associated with taxable income resulting from the Q1 2005 transfer of certain operating assets from the U.S. to international locations in connection with the establishment of our European headquarters in Luxembourg.

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We intend to perform similar asset transfers in 2006 to finalize our European headquarters transition, which we expect to result in an effective tax rate for financial reporting purposes significantly higher than the 35% statutory rate in 2006 and to beneficially impact our effective tax rate over time. Our 2006 effective tax rate is subject to significant potential volatility due to several factors, including the accurate prediction of our taxable income and the taxable jurisdictions to which it relates.

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Since we have deferred tax assets related to our Net Operating Losses (“NOLs”), these asset transfers will not have a significant effect on cash taxes paid in 2006, which we expect to be approximately $25 million compared with $12 million in 2005. We are not endeavoring to optimize our global taxes on a financial reporting basis; instead we endeavor to optimize our global taxes on a cash basis.

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At December 31, 2005, our net deferred tax assets, net of deferred tax liabilities, are $291 million, which includes $123 million relating to NOLs that are primarily attributed to stock-based compensation, the majority of which begin to expire in 2016, with the remaining portion relating to temporary differences between the carrying amounts of assets and liabilities and their tax bases.

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We allocate our valuation allowance to current and long-term deferred tax assets on a pro-rata basis.

This excerpt taken from the AMZN 8-K filed Oct 25, 2005.

Income Taxes and Deferred Tax Assets

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Our tax provision for interim periods is determined using an estimate of the annual effective tax rate, with the cumulative effect of a change to the estimated annual rate being recorded in the interim period such a change is made. The Q3 2005 tax provision includes a cumulative adjustment benefit of $4 million to reflect our current estimate of our annual effective tax rate of 50%.

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Our effective tax rate for Q3 2005 and for the three quarters ended September 30, 2005, remains higher than the 35% statutory rate associated with taxable income resulting from the Q1 2005 transfer of certain operating assets from the U.S. to international locations. We expect these asset transfers to result in tax expense for financial reporting purposes above the statutory rate throughout 2005. Since we have Net Operating Losses (“NOLs”) these asset transfers will not have a significant effect on cash taxes paid in 2005, which we expect to be approximately $25 million compared with $4 million in 2004. Cash paid for income taxes was $6 million and $2 million in Q3 2005 and Q3 2004, and for the three quarters ended September 30, 2005 and 2004 was $11 million and $3 million.

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SFAS 109 requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carry-forward periods available to us for tax reporting purposes, and other relevant factors. Significant judgment is required in making this assessment, and it is very difficult to predict when, if ever, our assessment may conclude that the remaining portion of our deferred tax assets is realizable.

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At September 30, 2005, approximately $720 million of our gross deferred tax assets were related to approximately $2.3 billion of NOLs, the majority of which expire after 2016. Our NOL deferred tax assets are reduced by a valuation allowance of approximately $510 million due to uncertainty about their future realization. The remainder of our deferred tax assets relate to temporary timing differences between tax and financial reporting.

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Substantially all of the unrealized $510 million NOL deferred tax assets, if realized, would be credited to “Stockholders’ equity” rather than results of operations for financial reporting purposes since they primarily relate to tax-deductible stock-based compensation in excess of amounts recognized for financial reporting purposes.

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Classification of deferred tax assets between current and long-term asset categories is based on the expected timing of realization, and the valuation allowance is allocated ratably.

This excerpt taken from the AMZN 8-K filed Jul 26, 2005.

Income Taxes and Deferred Tax Assets

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Our Q2 effective tax rate was higher than the 35% statutory rate primarily due to taxable income associated with the Q1 2005 transfer of certain operating assets from the U.S. to international locations. We expect these asset transfers to result in tax expense for financial reporting purposes above the statutory rate throughout 2005 and beneficially impact our effective tax rate over time. Since we have Net Operating Losses (NOLs), these asset transfers will not have a significant effect on cash taxes paid in 2005, which we expect to be approximately $25 million, compared with $4 million in 2004. In Q2, we paid cash taxes of $1 million, and year to date we have paid cash taxes of $5 million.

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SFAS 109 requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets including our recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carry-forward periods available to us for tax reporting purposes, and other relevant factors. Significant judgment is required in making this assessment, and it is very difficult to predict when, if ever, our assessment may conclude that the remaining portion of our deferred tax assets is realizable.

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At June 30, 2005, approximately $730 million of our gross deferred tax assets were related to approximately $2.3 billion of NOLs, the majority of which expire after 2016. Our NOL deferred tax assets are reduced by a valuation allowance of approximately $510 million due to uncertainty about their future realization. The remainder of our deferred tax assets relate to temporary timing differences between tax and financial reporting.

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Classification of deferred tax assets between current and long-term asset categories is based on the expected timing of realization, and the valuation allowance is allocated ratably.

This excerpt taken from the AMZN 8-K filed Apr 26, 2005.

Income Taxes and Deferred Tax Assets

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Our first quarter 2005 effective tax rate was higher than the 35% statutory rate primarily due to taxable income associated with the first quarter 2005 transfer of certain assets from the U.S. to international locations. We expect these asset transfers to result in tax expense for financial reporting purposes above the statutory rate throughout 2005 and beneficially impact our effective tax rate over time. Since we have Net Operating Losses (“NOLs”) for tax purposes, these asset transfers will not have a significant effect on cash taxes paid, which we expect to be approximately $25 million in 2005, compared with $4 million in 2004.

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SFAS 109 requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets including our recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carry-forward periods available to us for tax reporting purposes, and other relevant factors. Significant judgment is required in making this assessment, and it is very difficult to predict when, if ever, our assessment may conclude that the remaining portion of our deferred tax assets are realizable.

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At March 31, 2005, approximately $760 million of our gross deferred tax assets were related to approximately $2.4 billion of NOLs, the majority of which expire after 2016. Our NOL deferred tax assets are reduced by a valuation allowance of approximately $510 million due to uncertainty about their future realization. The remainder of our deferred tax assets relate to temporary timing differences between tax and financial reporting.

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Classification of deferred tax assets between current and long-term asset categories is based on the expected timing of realization, and the valuation allowance is allocated ratably.

EXCERPTS ON THIS PAGE:

8-K	Feb 2, 2006

8-K	Oct 25, 2005

8-K	Jul 26, 2005

8-K	Apr 26, 2005

Amazon.com (AMZN)

AMZN » Topics » Income Taxes and Deferred Tax Assets

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