Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
11. INCOME TAXES
The income tax provision consists of the following:
Year Ended December 31,
2023 2022 2021
Current
Federal $ 72  $ 116  $ 65 
State 14  22  16 
Foreign 40  22  11 
126  160  92 
Deferred
Federal (6) (30) (5)
State (4) (9) — 
Foreign (7) —  4 
(17) (39) (1)
Provision for income taxes $ 109  $ 121  $ 91 
Pretax income for domestic and foreign operations consisted of the following:
Year Ended December 31,
2023 2022 2021
Domestic $ 332  $ 432  $ 312 
Foreign 66  44  23 
Pretax income $ 398  $ 476  $ 335 
Deferred Taxes
Deferred income tax assets and liabilities are comprised of the following:
As of December 31,
2023 2022
Deferred income tax assets:
Accrued liabilities and deferred revenues $ 95  $ 85 
Tax credits (a)
9  7 
Other comprehensive income and other 13  14 
Provision for doubtful accounts 8  7 
Net operating loss carryforward (b)
23  22 
Valuation allowance (c)
(23) (23)
Deferred income tax assets 125  112 
Deferred income tax liabilities:
Depreciation and amortization 412  417 
Other comprehensive income and other 26  35 
Deferred income tax liabilities 438  452 
Net deferred income tax liabilities $ 313  $ 340 
Reported in:
Other non-current assets $ 12  $ 5 
Deferred income taxes 325  345 
Net deferred income tax liabilities $ 313  $ 340 
_____________________
(a)    As of December 31, 2023, the Company had $9 million of foreign tax credits. The foreign tax credits expire no later than 2033.
(b)    As of December 31, 2023, 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 2043.
(c)    The valuation allowance of $23 million as of December 31, 2023 relates to net operating loss carryforwards, certain deferred tax assets and foreign tax credits of $12 million, $2 million and $9 million, respectively. The valuation allowance of $23 million as of 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 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 $84 million will be reinvested indefinitely as of December 31, 2023. 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:
2023 2022 2021
Federal statutory rate 21.0  % 21.0  % 21.0  %
State and local income taxes, net of federal tax benefits 2.5  2.8  3.1 
Taxes on foreign operations at rates different than U.S. federal statutory rates 2.6  1.9  2.0 
Taxes on foreign income, net of tax credits 0.3  0.4  0.3 
Nondeductible executive compensation 1.2  0.7  0.7 
Foreign-derived intangible income (0.8) (0.5) (0.2)
Valuation allowances 0.1  (0.6) 0.5 
Other 0.5  (0.3) (0.2)
27.4  % 25.4  % 27.2  %
The effective income tax rate for 2023, 2022 and 2021 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.
The following table summarizes the activity related to the Company’s unrecognized tax benefits as of December 31:
2023 2022 2021
Beginning balance $ 8  $ 7  $ 9 
Increases related to tax positions taken during a prior period 7  4  1 
Increases related to tax positions taken during the current period 2  —  — 
Decreases related to settlements with taxing authorities (2) —  — 
Decreases as a result of a lapse of the applicable statute of limitations (4) (3) (2)
Decreases related to tax positions taken during a prior period —  —  (1)
Ending balance $ 11  $ 8  $ 7 
The gross amount of the unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate was $11 million, $8 million and $7 million as of December 31, 2023, 2022 and 2021, respectively. The Company recorded both accrued interest and penalties related to unrecognized tax benefits as a component of provision for income taxes on the Consolidated Statements of Income. The amount of potential penalties and interest related to these unrecognized tax benefits recorded in the provision for income taxes were immaterial during 2023, 2022 and 2021. The Company had a liability for potential penalties of $1 million as of December 31, 2023, 2022 and 2021, and potential interest of $3 million as of December 31, 2023 and $2 million as of December 31, 2022 and 2021. 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 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 2020. The 2018 through 2022 tax years generally remain subject to examination by many state tax authorities. In significant foreign jurisdictions, the 2016 through the 2022 tax years generally remain subject to examination by their respective tax authorities. The statute of limitations is scheduled to expire and current open examinations are expected to be resolved 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 $8 million to $9 million, inclusive of interest and penalties.
The Company made cash income tax payments, net of refunds, of $95 million, $123 million and $114 million during 2023, 2022 and 2021, respectively.
On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States. The IRA did not have a material impact on its financial results, including on its annual estimated effective tax rate or liquidity.