XML 45 R21.htm IDEA: XBRL DOCUMENT v3.23.2
Income Taxes
 12 Months Ended
May 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 12: INCOME TAXES

The components of the provision for income taxes for the years ended May 31 were as follows (in millions):

 

 

2023

 

 

2022

 

 

2021

 

Current provision

 

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

 

Federal

 

$

579

 

 

$

311

 

 

$

199

 

State and local

 

 

157

 

 

 

120

 

 

 

158

 

Foreign

 

 

209

 

 

 

317

 

 

 

284

 

 

 

 

945

 

 

 

748

 

 

 

641

 

Deferred provision

 

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

 

Federal

 

 

369

 

 

 

267

 

 

 

667

 

State and local

 

 

37

 

 

 

21

 

 

 

70

 

Foreign

 

 

40

 

 

 

34

 

 

 

65

 

 

 

 

446

 

 

 

322

 

 

 

802

 

 

 

$

1,391

 

 

$

1,070

 

 

$

1,443

 

 

Pre-tax earnings of foreign operations for 2023, 2022, and 2021 were $0.6 billion, $1.4 billion, and $1.8 billion, respectively. These amounts represent only a portion of total results associated with international shipments and do not represent our international results of operations.

A reconciliation of total income tax expense and the amount computed by applying the statutory federal income tax to income before income taxes for the years ended May 31 is as follows (dollars in millions):

 

 

2023

 

 

2022

 

 

2021

 

Taxes computed at federal statutory rate

 

$

1,126

 

 

$

1,028

 

 

$

1,401

 

(Decreases) increases in income tax from:

 

 

 

 

 

 

 

 

 

U.S. and foreign return-to-provision adjustments

 

 

(44

)

 

 

(142

)

 

 

—

 

State and local income taxes, net of federal benefit

 

152

 

 

 

116

 

 

 

179

 

Foreign operations

 

 

96

 

 

 

115

 

 

 

138

 

Non-deductible expenses

 

 

40

 

 

 

48

 

 

 

53

 

Uncertain tax positions

 

 

60

 

 

 

(18

)

 

 

65

 

Benefits from share-based payments

 

 

(18

)

 

 

(13

)

 

 

(69

)

Valuation allowance

 

 

59

 

 

 

33

 

 

 

14

 

Foreign tax rate enactments

 

 

3

 

 

 

(30

)

 

 

(61

)

Benefit from U.S. tax loss carryback to prior years

 

 

—

 

 

 

—

 

 

 

(279

)

Goodwill impairment charges

 

 

8

 

 

 

—

 

 

 

—

 

Other, net

 

 

(91

)

 

 

(67

)

 

 

2

 

Provision for income taxes

 

$

1,391

 

 

$

1,070

 

 

$

1,443

 

Effective Tax Rate

 

 

25.9

%

 

 

21.9

%

 

 

21.6

%

 

The 2023 tax provision was negatively impacted by an expense of $46 million related to a write-down and valuation allowance on certain foreign tax credit carryforwards due to operational changes which impacted the determination of the realizability of the deferred tax asset. The 2023 tax provision was also negatively impacted by lower earnings in certain non-U.S. jurisdictions.

The 2022 tax provision includes a benefit of $142 million related to revisions of prior year tax estimates for actual tax return results. The 2022 tax provision was also favorably impacted by changes in our corporate legal entity structure.

The Coronavirus Aid, Relief, and Economic Security Act allowed a five-year carryback period for tax losses generated in 2019 through 2021. The 2021 tax provision includes a benefit of $279 million from an increase in our 2020 tax loss carried back to 2015, when the U.S. federal income tax rate was 35%. The increase in our 2020 tax loss was attributable to accelerated depreciation deductions and voluntary contributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”). The 2021 tax provision also includes a benefit of $66 million from a tax rate increase in the Netherlands applied to our deferred tax asset balances and was negatively impacted by an increase in uncertain tax positions for matters in multiple jurisdictions.

We regularly assess the need for cash in the U.S., as well as in our foreign subsidiaries, and will occasionally repatriate back to the U.S. excess earnings above working capital needs that can be repatriated with an immaterial tax cost. We assert all other earnings, both historical and current in our foreign subsidiaries, are permanently reinvested and therefore no deferred taxes or withholding taxes have been provided, including deferred taxes on any additional outside basis difference (e.g., stock basis differences attributable to acquisition or other permanent differences). Determination of the amount of unrecognized deferred income tax liability related to any remaining undistributed foreign earnings and additional outside basis differences is not practicable.

The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions):

 

 

 

2023

 

 

2022

 

 

 

Deferred Tax
Assets

 

 

Deferred Tax
Liabilities

 

 

Deferred Tax
Assets

 

 

Deferred Tax
Liabilities

 

Property, equipment, leases, and intangibles

 

$

4,608

 

 

$

10,965

 

 

$

4,464

 

 

$

10,608

 

Employee benefits

 

 

876

 

 

 

—

 

 

 

1,203

 

 

 

—

 

Self-insurance accruals

 

 

1,085

 

 

 

—

 

 

 

931

 

 

 

—

 

Other

 

 

454

 

 

 

62

 

 

 

524

 

 

 

66

 

Net operating loss/credit carryforwards

 

 

1,149

 

 

 

—

 

 

 

1,079

 

 

 

—

 

Valuation allowances

 

 

(471

)

 

 

—

 

 

 

(413

)

 

 

—

 

 

 

$

7,701

 

 

$

11,027

 

 

$

7,788

 

 

$

10,674

 

 

 

The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows (in millions):

 

 

2023

 

 

2022

 

Noncurrent deferred tax assets(1)

 

$

1,163

 

 

$

1,207

 

Noncurrent deferred tax liabilities

 

 

(4,489

)

 

 

(4,093

)

 

 

$

(3,326

)

 

$

(2,886

)

 

(1)
Noncurrent deferred tax assets are included in the line item “Other Assets” in our accompanying consolidated balance sheets.

We have approximately $3.4 billion of net operating loss carryovers in various foreign jurisdictions, $1.5 billion of state operating loss carryovers, and $153 million of U.S. federal operating loss carryovers. The valuation allowances primarily represent amounts reserved for operating loss carryforwards, which expire over varying periods starting in 2024. Therefore, we establish valuation allowances if it is more likely than not that deferred income tax assets will not be realized. We believe that we will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our consolidated balance sheets. The increase in the valuation allowance balance during 2023 includes $37 million related to foreign net operating losses and $22 million for foreign tax credit carryforwards. See Note 1 for more information on our policy for assessing the recoverability of deferred tax assets and valuation allowances.

We are subject to taxation in the U.S. and various U.S. state, local, and foreign jurisdictions. We are currently under examination by the Internal Revenue Service for the 2016 through 2019 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. However, we believe we have recorded adequate amounts of tax, including interest and penalties, for any adjustments expected to occur.

During 2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act (“TCJA”). Our lawsuit seeks to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $223 million through 2023 attributable to our interpretation of the TCJA and the Internal Revenue Code. On March 31, 2023, the District Court ruled that the regulation is invalid and contradicts the plain terms of the tax code. We continue to work towards obtaining a final judgment for the applicable refund amounts due to the regulation being invalid. Once the District Court enters a final judgment, the U.S. government could file an appeal with the U.S. Court of Appeals for the Sixth Circuit. If we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended May 31 is as follows (in millions):

 

 

2023

 

 

2022

 

 

2021

 

Balance at beginning of year

 

$

169

 

 

$

192

 

 

$

129

 

Increases for tax positions taken in the current year

 

 

3

 

 

 

14

 

 

 

3

 

Increases for tax positions taken in prior years

 

 

68

 

 

 

8

 

 

 

69

 

Decreases for tax positions taken in prior years

 

 

(7

)

 

 

(15

)

 

 

(6

)

Settlements

 

 

(15

)

 

 

(32

)

 

 

(6

)

Changes due to currency translation

 

 

(6

)

 

 

2

 

 

 

3

 

Balance at end of year

 

$

212

 

 

$

169

 

 

$

192

 

 

Our liabilities recorded for uncertain tax positions include $211 million at May 31, 2023 and $167 million at May 31, 2022 associated with positions that, if favorably resolved, would provide a benefit to our income tax expense. We classify interest related to income tax liabilities as interest expense and, if applicable, penalties are recognized as a component of income tax expense. The balance of accrued interest and penalties was $54 million on May 31, 2023 and $55 million on May 31, 2022. Our consolidated statements of income for 2021 include $20 million of interest expense associated with our uncertain tax positions while interest and penalty expense for 2023 and 2022 are immaterial.

It is difficult to predict the ultimate outcome or the timing of resolution for tax positions. Changes may result from the conclusion of ongoing audits, appeals, or litigation in state, local, federal, and foreign tax jurisdictions, or from the resolution of various proceedings between U.S. and foreign tax authorities. It is reasonably possible that the amount of the benefit with respect to certain of our unrecognized tax positions will increase or decrease within the next 12 months. However, estimates of the amounts or ranges for individual matters where a material change is reasonably possible cannot be made. We believe we have recorded adequate amounts of tax reserves, including interest and penalties, for any adjustments that may occur.