Taxes



Income Taxes	Year ended December 31
	2018			2017			2016
Income tax expense (benefit)
U.S. federal
Current	$	(181	)	$	(382	)	$	(623	)
Deferred	738			(2,561		)	(1,558		)
State and local
Current	183			(97		)	(15		)
Deferred	(16		)	66			(121		)
Total United States	724			(2,974		)	(2,317		)
International
Current	4,662			3,634			2,744
Deferred	329			(708		)	(2,156		)
Total International	4,991			2,926			588
Total income tax expense (benefit)	$	5,715		$	(48	)	$	(1,729	)

The reconciliation between the U.S. statutory federal income tax rate and the company’s effective income tax rate is detailed in the following table:



	2018			2017			2016
Income (loss) before income taxes
United States	$	4,730		$	(441	)	$	(4,317	)
International	15,845			9,662			2,157
Total income (loss) before income taxes	20,575			9,221			(2,160		)
Theoretical tax (at U.S. statutory rate of 21% - 2018, 35% - 2017 & 2016)	4,321			3,227			(756		)
Effect of U.S. tax reform	(26		)	(2,020		)	—
Equity affiliate accounting effect	(1,526		)	(1,373		)	(704		)
Effect of income taxes from international operations^*	3,132			(130		)	608
State and local taxes on income, net of U.S. federal income tax benefit	162			39			(44		)
Prior year tax adjustments, claims and settlements	(51		)	(39		)	(349		)
Tax credits	(163		)	(199		)	(188		)
Other U.S.^*	(134		)	447			(296		)
Total income tax expense (benefit)	$	5,715		$	(48	)	$	(1,729	)

Effective income tax rate	27.8		%	(0.5		)%	80.0		%

^*Includes one-time tax costs (benefits) associated with changes in uncertain tax positions and valuation allowances.

The 2018 increase in income tax charge of $5,763, from a benefit of $48 in 2017 to a charge of $5,715 in 2018, is a result of the year-over-year increase in total income before income tax expense, which is primarily due to higher crude oil realizations offset by lower gains on asset sales in 2018 compared to 2017. U.S. tax reform resulted in a benefit of $2,020 being recognized in 2017 reflecting the remeasurement of U.S. deferred tax assets and liabilities. The company’s effective tax rate changed from (0.5) percent in 2017 to 28 percent in 2018. The change in effective tax rate is a consequence of the mix effect resulting from the absolute level of earnings or losses and whether they arose in higher or lower tax rate jurisdictions and the impact of U.S. tax reform to both the 2018 and 2017 results.

As noted above, U.S. tax reform resulted in the remeasurement of U.S. deferred tax assets and liabilities in 2017. The U.S. tax return for 2017 was prepared and filed in 2018 and did not result in any material change to the the provisional amounts that were recognized in 2017, and the amounts are now considered final.

The company records its deferred taxes on a tax-jurisdiction basis. The reported deferred tax balances are composed of the following:



				At December 31
	2018			2017
Deferred tax liabilities
Properties, plant and equipment	$	20,159		$	19,869
Investments and other	4,943			4,796
Total deferred tax liabilities	25,102			24,665
Deferred tax assets
Foreign tax credits	(10,536		)	(11,872		)
Asset retirement obligations/environmental reserves	(5,328		)	(5,511		)
Employee benefits	(2,787		)	(3,129		)
Deferred credits	(1,373		)	(1,769		)
Tax loss carryforwards	(4,948		)	(5,463		)
Other accrued liabilities	(595		)	(842		)
Inventory	(505		)	(336		)
Miscellaneous	(3,481		)	(2,415		)
Total deferred tax assets	(29,553		)	(31,337		)
Deferred tax assets valuation allowance	15,973			16,574
Total deferred taxes, net	$	11,522		$	9,902

Deferred tax liabilities at the end of 2018 increased by approximately $400 from year-end 2017. The increase was primarily related to property, plant and equipment temporary differences.

Deferred tax assets decreased by approximately $1,800 in 2018. The decrease primarily related to lower foreign tax credits and the utilization of tax loss carryforwards.

The overall valuation allowance relates to deferred tax assets for U.S. foreign tax credit carryforwards, tax loss carryforwards and temporary differences. It reduces the deferred tax assets to amounts that are, in management’s assessment, more likely than not to be realized. At the end of 2018, the company had tax loss carryforwards of approximately $13,731 and tax credit carryforwards of approximately $1,198, primarily related to various international tax jurisdictions. Whereas some of these tax loss carryforwards do not have an expiration date, others expire at various times from 2019 through 2036. U.S. foreign tax credit carryforwards of $10,536 will expire between 2019 and 2028.

At December 31, 2018 and 2017, deferred taxes were classified on the Consolidated Balance Sheet as follows:



	At December 31
	2018			2017
Deferred charges and other assets	$	(4,399	)	$	(4,750	)
Noncurrent deferred income taxes	15,921			14,652
Total deferred income taxes, net	$	11,522		$	9,902

Enactment of U.S. tax reform in 2017 imposed a one-time U.S. federal tax on the deemed repatriation of unremitted earnings indefinitely reinvested abroad, which did not have a material impact on the company’s financial results. The indefinite reinvestment assertion continues to apply for the purpose of determining deferred tax liabilities for U.S. state and foreign withholding tax purposes.

U.S. state and foreign withholding taxes are not accrued for unremitted earnings of international operations that have been or are intended to be reinvested indefinitely. Undistributed earnings of international consolidated subsidiaries and affiliates for which no deferred income tax provision has been made for possible future remittances totaled approximately $59,900 at December 31, 2018. This amount represents earnings reinvested as part of the company’s ongoing international business. It is not practicable to estimate the amount of state and foreign taxes that might be payable on the possible remittance of earnings that are intended to be reinvested indefinitely. The company does not anticipate incurring significant additional taxes on remittances of earnings that are not indefinitely reinvested.

Uncertain Income Tax Positions The company recognizes a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” in the accounting standards for income taxes refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.

The following table indicates the changes to the company’s unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016. The term “unrecognized tax benefits” in the accounting standards for income taxes refers to the differences between a tax position taken or expected to be taken in a tax return and the benefit measured and recognized in the financial statements. Interest and penalties are not included.



	2018			2017			2016
Balance at January 1	$	4,828		$	3,031		$	3,042
Foreign currency effects	(6		)	43			1
Additions based on tax positions taken in current year	239			1,853			245
Additions for tax positions taken in prior years	153			1,166			181
Reductions for tax positions taken in prior years	(131		)	(90		)	(390		)
Settlements with taxing authorities in current year	(13		)	(1,173		)	(36		)
Reductions as a result of a lapse of the applicable statute of limitations	—			(2		)	(12		)
Balance at December 31	$	5,070		$	4,828		$	3,031

Approximately 82 percent of the $5,070 of unrecognized tax benefits at December 31, 2018, would have an impact on the effective tax rate if subsequently recognized. Certain of these unrecognized tax benefits relate to tax carryforwards that may require a full valuation allowance at the time of any such recognition.

Tax positions for Chevron and its subsidiaries and affiliates are subject to income tax audits by many tax jurisdictions throughout the world. For the company’s major tax jurisdictions, examinations of tax returns for certain prior tax years had not been completed as of December 31, 2018. For these jurisdictions, the latest years for which income tax examinations had been finalized were as follows: United States – 2013, Nigeria – 2000, Australia – 2006 and Kazakhstan – 2007.

The company engages in ongoing discussions with tax authorities regarding the resolution of tax matters in the various jurisdictions. Both the outcome of these tax matters and the timing of resolution and/or closure of the tax audits are highly uncertain. However, it is reasonably possible that developments on tax matters in certain tax jurisdictions may result in significant increases or decreases in the company’s total unrecognized tax benefits within the next 12 months. Given the number of years that still remain subject to examination and the number of matters being examined in the various tax jurisdictions, the company is unable to estimate the range of possible adjustments to the balance of unrecognized tax benefits.

On the Consolidated Statement of Income, the company reports interest and penalties related to liabilities for uncertain tax positions as “Income tax expense.” As of December 31, 2018, accruals of $33 for anticipated interest and penalty obligations were included on the Consolidated Balance Sheet, compared with accruals of $178 as of year-end 2017. Income tax expense (benefit) associated with interest and penalties was $8, $(161) and $38 in 2018, 2017 and 2016, respectively.



Taxes Other Than on Income	Year ended December 31
	2018			2017		2016
United States
Excise and similar taxes on products and merchandise*	$	4,830		$	4,398	$	4,335
Consumer excise taxes collected on behalf of third parties*	(4,830		)	—		—
Import duties and other levies	15			11		9
Property and other miscellaneous taxes	1,577			1,824		1,680
Payroll taxes	246			241		252
Taxes on production	325			206		159
Total United States	2,163			6,680		6,435
International
Excise and similar taxes on products and merchandise*	3,031			2,791		2,570
Consumer excise taxes collected on behalf of third parties*	(3,031		)	—		—
Import duties and other levies	37			45		33
Property and other miscellaneous taxes	2,370			2,563		2,379
Payroll taxes	132			137		145
Taxes on production	165			115		106
Total International	2,704			5,651		5,233
Total taxes other than on income	$	4,867		$	12,331	$	11,668

^*Beginning in 2018, these taxes are netted in "Taxes other than on income" in accordance with ASU 2014-09. Refer to Note 25, "Revenue" beginning on page 88.