Well years ago the joke was Amazon sold at a very small loss but made it up in volume, and we can see how that turned out... Maybe they're going to blow up this business model as well!
Amazon’s “losses” have mostly been a tax dodge. They would for example invest in software R&D without presenting it as an investment from profits but rather an operating expense.
If I pay you 100k then you spend 50k buying land that’s not a “loss”. When a company spends 50k on R&D that’s generally an investment not an operating expense. Plenty of other dodges exist for physical assets via depreciation games etc. Even just buying more brand averting is an option to increase capital without being taxed on it’s creation.
Buying land would technically be a capital expenditure where you can only claim a deduction if the land becomes less valuable. If you're talking about more "normal" business purchases like computers or equipment you get to deduct a portion of the expense every year as it depreciates. So if you buy a $2k laptop for a developer and in 1 year it's now worth $1500 then you can deduct $500.
For a business that really doesn't make a difference. If you have $1 billion in revenue but spent $999,999,999 in order to generate the revenue then your business income is $1.
Or the complete logical extreme. If I sell a dollar bill for $1 that's not income that should be taxed.
> If I sell a dollar bill for $1 that's not income that should be taxed.
You always have overhead so you can’t actually sell 1$ for 1$. Breaking even requires selling assets for more than their worth to cover transaction fees. We let companies deduct those fees, but what’s a fee and what’s an investment gets blurred. Especially when most companies don’t suddenly get destroyed after a single transaction. The classic razor and blade model being a prime example for hiding profits.
Sure, cash flow may make it seem minimally profitable, but that’s only relevant in this quarter or if you run out of cash. Spend X million on software development or brand advertising and can have a tax free transfer from income to capital. Leverage that for a few decades and suddenly your business is worth 10x as much without any apparent profit. Clearly an asset was being invested in.
Maybe this speaks to a need to tie taxes to income AND revenue. Not that I think the tax code should get any more complicated (quite the opposite), but if Amazon is selling at a loss to decrease the amount of tax they pay, while they starve out other companies in the market, there should be at least some benefit to society.
