Amazon.com 2008 Annual Report Download - page 79

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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
U.S. and international components of income before income taxes were as follows:
Year Ended December 31,
2008 2007 2006
(in millions)
U.S. ................................................................... $436 $360 $396
International (1) ......................................................... 465 300 (19)
Income before income taxes ............................................ $901 $660 $377
(1) Included in 2008 is the impact of the $53 million non-cash gain associated with the sale of our European
DVD rental assets. This gain will be taxed at rates substantially below the 35% U.S. federal statutory rate.
The items accounting for differences between income taxes computed at the federal statutory rate and the
provision recorded for income taxes are as follows:
Year Ended December 31,
2008 2007 2006
Federal statutory rate ..................................................... 35.0% 35.0% 35.0%
Effect of:
Impact of international operations and restructuring ..................... (13.8) (11.7) 15.9
State taxes, net of federal benefits ................................... 2.8 2.1 1.6
Tax credits ..................................................... (2.2) (1.1) (2.8)
Nondeductible stock-based compensation ............................. 1.7 1.4 1.4
Valuation allowance .............................................. 2.6 (1.2) (2.6)
Other, net ...................................................... 1.3 3.4 1.1
Total ...................................................... 27.4% 27.9% 49.6%
The effective tax rate in 2008 and 2007 was lower than the 35% U.S. federal statutory rate primarily due to
earnings of our subsidiaries outside of the U.S. in jurisdictions where our effective tax rate is lower than in the
U.S. The effective tax rate in 2006 was higher than the 35% U.S. federal statutory rate resulting from
establishment of our European headquarters in Luxembourg. Associated with the establishment of our European
headquarters, we transferred certain of our operating assets in 2005 and 2006 from the U.S. to international
locations. These transfers resulted in taxable income and exposure to additional taxable income assertions by
taxing jurisdictions.
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