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Note 7 - Income Taxes
 12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

 

7. Income Taxes

 

Components of income tax expense were as follows for the years ended December 31:

 

Millions

 

2022

  

2021

  

2020

 

Current tax expense:

            

Federal

 $1,465  $1,446  $1,026 

State

  340   347   259 

Foreign

  7   8   6 

Total current tax expense

  1,812   1,801   1,291 

Deferred and other tax expense/(benefit):

            

Federal

  320   199   295 

State [a]

  (59)  (44)  45 

Foreign

  1   (1)  - 

Total deferred and other tax expense

  262   154   340 

Total income tax expense

 $2,074  $1,955  $1,631 

 

[a]

In 2022, Nebraska, Iowa, Arkansas, and Idaho enacted corporate income tax legislation that resulted in a $95 million reduction of our deferred tax expense. In 2021, Nebraska, Oklahoma, Idaho, Louisiana, and Arkansas enacted corporate income tax legislation that resulted in a $32 million reduction of our deferred tax expense.

 

For the years ended December 31, reconciliations between statutory and effective tax rates are as follows:

 

Tax Rate Percentages

 

2022

  

2021

  

2020

 

Federal statutory tax rate

  21.0

%

  21.0

%

  21.0

%

State statutory rates, net of federal benefits

  3.6   3.7   3.7 

Deferred tax adjustments

  (1.0)  (0.6)  (0.1)

Dividends received deduction

  (0.5)  (0.5)  (0.5)

Excess tax benefits from equity compensation plans

  (0.2)  (0.3)  (0.8)

Other

  -   (0.2)  0.1 

Effective tax rate

  22.9

%

  23.1

%

  23.4

%

 

Deferred income tax assets/(liabilities) were comprised of the following at December 31:

 

Millions

 

2022

  

2021

 

Deferred income tax liabilities:

        

Property

 $(12,910) $(12,657)

Operating lease assets

  (411)  (441)

Other

  (591)  (534)

Total deferred income tax liabilities

  (13,912)  (13,632)

Deferred income tax assets:

        

Operating lease liabilities

  401   434 

Accrued casualty costs

  164   157 

Accrued wages

  50   45 

Stock compensation

  26   26 

Retiree benefits

  -   39 

Other

  238   256 

Total deferred income tax assets

  879   957 

Net deferred income tax liability

 $(13,033) $(12,675)

 

In 2022 and 2021, there were no valuation allowances against deferred tax assets.

 

A reconciliation of changes in unrecognized tax benefits liabilities/(assets) from the beginning to the end of the reporting period is as follows:

 

Millions

 

2022

  

2021

  

2020

 

Unrecognized tax benefits at January 1

 $38  $74  $64 

Decreases for positions taken in prior years

  (4)  (24)  (19)

Increases for positions taken in current year

  3   3   18 

Lapse of statutes of limitations

  (3)  (1)  (1)

Refunds from/(payments to) and settlements with taxing authorities

  -   (12)  - 

Increases/(decreases) for interest and penalties

  -   (3)  5 

Increases for positions taken in prior years

  -   1   7 

Unrecognized tax benefits at December 31

 $34  $38  $74 

 

We recognize interest and penalties as part of income tax expense. Total accrued liabilities/(receivables) for interest and penalties were ($3) million and ($1) million at December 31, 2022 and 2021, respectively. Total interest and penalties recognized as part of income tax expense/(benefit) were ($2) million for 2022, ($5) million for 2021, and $5 million for 2020.

 

Several state tax authorities are examining our state income tax returns for years 2018 through 2021.

 

We do not expect our unrecognized tax benefits to change significantly in the next 12 months. The portion of our unrecognized tax benefits that relates to permanent changes in tax and interest would reduce our effective tax rate, if recognized. The remaining unrecognized tax benefits relate to tax positions for which only the timing of the benefit is uncertain. The unrecognized tax benefits that would reduce our effective tax rate are $31 million for 2022, $31 million for 2021, and $52 million for 2020.