Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
12. INCOME TAXES
The income tax provision/(benefit) consists of the following:
Year Ended December 31,
2022 2021 2020
Current
Federal $ 116  $ 65  $ (5)
State 22  16  (2)
Foreign 22  11  4 
160  92  (3)
Deferred
Federal (30) (5) (10)
State (9) —  (8)
Foreign —  4  (5)
(39) (1) (23)
Provision for/(benefit from) income taxes $ 121  $ 91  $ (26)
Pretax income/(loss) for domestic and foreign operations consisted of the following:
Year Ended December 31,
2022 2021 2020
Domestic $ 432  $ 312  $ (113)
Foreign 44  23  (45)
Pretax income/(loss) $ 476  $ 335  $ (158)
Deferred Taxes
Deferred income tax assets and liabilities are comprised of the following:
As of December 31,
2022 2021
Deferred income tax assets:
Accrued liabilities and deferred revenues $ 85  $ 77 
Tax credits (a)
7  7 
Other comprehensive income and other 14  14 
Provision for doubtful accounts 7  10 
Net operating loss carryforward (b)
22  21 
Valuation allowance (c)
(23) (27)
Deferred income tax assets 112  102 
Deferred income tax liabilities:
Depreciation and amortization 417  444 
Other comprehensive income and other 35  19 
Deferred income tax liabilities 452  463 
Net deferred income tax liabilities $ 340  $ 361 
Reported in:
Other non-current assets $ 5  $ 5 
Deferred income taxes 345  366 
Net deferred income tax liabilities $ 340  $ 361 
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(a)    As of December 31, 2022, the Company had $7 million of foreign tax credits. The foreign tax credits expire no later than 2032.
(b)    As of December 31, 2022, the Company’s net operating loss carryforwards primarily relate to state net operating losses, which are due to expire at various dates, but no later than 2042.
(c)    The valuation allowance of $23 million at December 31, 2022 relates to net operating loss carryforwards, certain deferred tax assets and foreign tax credits of $14 million, $2 million and $7 million, respectively. The valuation allowance of $27 million at December 31, 2021 relates to net operating loss carryforwards, certain deferred tax assets and foreign tax credits of $17 million, $6 million and $4 million, respectively. The valuation allowance will be reduced when and if the Company determines it is more likely than not that the related deferred income tax assets will be realized.
Although the one-time mandatory deemed repatriation tax during 2017 and the territorial tax system created as a result of U.S. tax reform generally eliminate U.S. federal income taxes on dividends from foreign subsidiaries, the Company continues to assert that all of the undistributed foreign earnings of $48 million will be reinvested indefinitely as of December 31, 2022. In the event the Company determines not to continue to assert that all or part of its undistributed foreign earnings are permanently reinvested, such a determination in the future could result in the accrual and payment of additional foreign withholding taxes and U.S. taxes on currency transaction gains and losses, the determination of which is not practicable due to the complexities associated with the hypothetical calculation.
The Company’s effective income tax rate differs from the U.S. federal statutory rate as follows for the years ended December 31:
2022 2021 2020
Federal statutory rate 21.0  % 21.0  % 21.0  %
State and local income taxes, net of federal tax benefits 2.8  3.1  5.5 
Taxes on foreign operations at rates different than U.S. federal statutory rates 1.9  2.0  (2.1)
Taxes on foreign income, net of tax credits 0.4  0.3  1.2 
Nondeductible executive compensation 0.7  0.7  (1.9)
Nondeductible goodwill impairment —  —  (1.8)
Foreign-derived intangible income (0.5) (0.2) 0.2 
Valuation allowances (0.6) 0.5  (5.2)
Other (0.3) (0.2) (0.4)
25.4  % 27.2  % 16.5  %
The effective income tax rate for 2022, 2021 and 2020 differs from the U.S. Federal income tax rate of 21% primarily due to state taxes and U.S. and foreign taxes, including withholding taxes on the Company’s international operations. During 2020, our effective tax rate was lower primarily related to goodwill impairment charges that are nondeductible for tax purposes and valuation allowances for certain deferred tax attributes.
The following table summarizes the activity related to the Company’s unrecognized tax benefits as of December 31:
2022 2021 2020
Beginning balance $ 7  $ 9  $ 11 
Increases related to tax positions taken during a prior period 4  1  — 
Increases related to tax positions taken during the current period —  —  1 
Decreases related to settlements with taxing authorities —  —  — 
Decreases as a result of a lapse of the applicable statute of limitations (3) (2) (3)
Decreases related to tax positions taken during a prior period —  (1) — 
Ending balance $ 8  $ 7  $ 9 
The gross amount of the unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate was $8 million, $7 million and $9 million as of December 31, 2022, 2021 and 2020, respectively. The Company recorded both accrued interest and penalties related to unrecognized tax benefits as a component of provision for/(benefit from) income taxes on the Consolidated Statements of Income/(Loss). The amount of potential penalties and interest related to these unrecognized tax benefits recorded in the provision for income taxes was immaterial during 2022 and 2021 and a benefit of $1 million during 2020. The Company had a liability for potential penalties of $1 million as of December 31, 2022, 2021 and 2020, and potential interest of $2 million as of December 31, 2022, 2021 and 2020. Such liabilities are reported as a component of accrued expenses and other current liabilities and other non-current liabilities on the Consolidated Balance Sheets. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.
The Company files income tax returns in the U.S. federal and state jurisdictions, as well as in foreign jurisdictions. With certain exceptions, the Company is no longer subject to federal income tax examinations for years prior to 2019. The 2017 through 2021 tax years generally remain subject to examination by many state tax authorities. In significant foreign jurisdictions, the 2015 through the 2021 tax years generally remain subject to examination by their respective tax authorities. The statute of limitations is scheduled to expire within 12 months of the reporting date in certain taxing jurisdictions, and the Company therefore believes that it is reasonably possible that the total amount of its unrecognized tax benefits could decrease by $4 million to $5 million.
The Company made cash income tax payments, net of refunds, of $123 million during 2022 and $114 million during 2021. The Company received income tax refunds, net of payments, of $9 million during 2020. Additionally, the Company had $15 million and $48 million of income tax receivables as of December 31, 2022 and 2021, respectively, which was reported within other current assets on the Consolidated Balance Sheets.
On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States. The Company does not currently expect the IRA to have a material impact on its financial results, including on its annual estimated effective tax rate or liquidity.