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Income Taxes

12 Months Ended

Dec. 31, 2020

Note 8. Income Taxes

Earnings before income taxes were derived from the following sources:


	2020		2019	2018
Domestic	$	1,046.7	977.6	905.0
Foreign	86.0		66.1	82.0
Earnings before income taxes	$	1,132.7	1,043.7	987.0

Components of income tax expense (benefit) were as follows:


2020:	Current		Deferred	Total
Federal	$	195.4	1.8	197.2
State	47.5		(0.5)	47.0
Foreign	28.1		1.3	29.4
Income tax expense	$	271.0	2.6	273.6


2019:	Current		Deferred	Total
Federal	$	177.4	11.3	188.7
State	41.6		0.2	41.8
Foreign	22.1		0.2	22.3
Income tax expense	$	241.1	11.7	252.8


2018:	Current		Deferred	Total
Federal	$	143.8	27.4	171.2
State	38.8		0.2	39.0
Foreign	24.1		0.8	24.9
Income tax expense	$	206.7	28.4	235.1

Income tax expense in the accompanying consolidated financial statements differed from the expected expense as follows:


	2020			2019		2018
U.S. federal statutory income tax rate	21.0		%	21.0	%	21.0	%
U.S. federal income tax expense at statutory rate	$	237.9		219.2		207.3
Increase (decrease) attributed to:
State income taxes, net of federal benefit	36.3			32.8		30.2
Transition tax	—			—		1.2
Remeasurement of deferred taxes for Tax Act	—			—		(11.5)
Other, net	(0.6)			0.8		7.9
Total income tax expense	$	273.6		252.8		235.1
Effective income tax rate	24.2		%	24.2	%	23.8	%

The tax effects of temporary differences that give rise to deferred income tax assets and liabilities at year end consisted of the following:


	2020		2019
Deferred income tax assets (liabilities):
Inventory costing and valuation methods	$	5.3	4.3
Allowance for credit losses	3.1		2.7
Insurance reserves	9.1		9.1
Customer promotions	2.4		1.9
Stock-based compensation	3.3		3.9
Operating lease liabilities	62.1		62.5
Federal and state benefit of uncertain tax positions	0.8		0.8
Foreign net operating loss and credit carryforwards	1.9		3.2
Foreign valuation allowances	(2.2)		(2.8)
Other, net	(0.3)		(0.0)
Total deferred income tax assets	85.5		85.6
Property and equipment	(117.6)		(114.7)
Operating lease ROU assets	(61.4)		(61.7)
Total deferred income tax liabilities	(179.0)		(176.4)
Deferred income tax liabilities	$	(93.5)	(90.8)

A reconciliation of the beginning and ending amount of total gross unrecognized tax benefits was as follows:


	2020		2019
Balance at beginning of year:	$	8.6	5.3
Increase related to prior year tax positions	0.2		0.2
Decrease related to prior year tax positions	(0.1)		(0.2)
Increase related to current year tax positions	0.8		4.7
Decrease related to statute of limitation lapses	(0.7)		(1.4)
Settlements	—		—
Balance at end of year:	$	8.8	8.6

Included in the liability for gross unrecognized tax benefits is an immaterial amount for interest and penalties, both of which we classify as a component of income tax expense. The amount of gross unrecognized tax benefits that would favorably impact the effective tax rate, if recognized, is not material. We do not anticipate significant changes in total unrecognized tax benefits during the next twelve months. The 2020 and 2019 liability is included in deferred income taxes in the Consolidated Balance Sheets.

We file income tax returns in the United States federal jurisdiction, all states, and various local and foreign jurisdictions. We are no longer subject to income tax examinations by taxing authorities for taxable years before 2017 in the case of United States federal examinations, and with limited exception, before 2015 in the case of foreign, state, and local examinations. During 2020, there were no material changes in unrecognized tax benefits.

In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or very minimal. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our approximately $365.2 of undistributed earnings from foreign subsidiaries to the U.S. as those earnings continue to be permanently reinvested.

On December 22, 2017, the Tax Act was signed into law. The Tax Act made broad and complex changes to the U.S. tax code which include: a lowering of the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, accelerated expensing of qualified capital investments for a specific period, and a transition from a worldwide to a territorial tax system which requires companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries.

ASC 740 requires a company to record the effects of a tax law change in the period of enactment which, for us, was fiscal 2017.

ASU 2018-05 provides guidance on the application of the Tax Act which includes allowing a company to record a provisional amount during the measurement period for the impacts when the necessary information is not available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.The accounting for the income tax effects of the Tax Act was complete in 2018 when the final impact of the transition tax and impacts of accelerating depreciation for certain physical assets were recorded.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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