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INCOME TAXES | 12 Months Ended
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Jul. 01, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income Tax Provisions For financial reporting purposes, earnings (loss) before income taxes consists of the following:
| 2023 |  | 2022 |  | 2021
| (In thousands)
U.S. | $ | 1,941,581 |  |  | $ | 1,642,376 |  |  | $ | 858,179 |
Foreign | 343,774 |  |  | 104,397 |  |  | (273,451) |
Total | $ | 2,285,355 |  |  | $ | 1,746,773 |  |  | $ | 584,728 |
The income tax provision for each fiscal year consists of the following:
| 2023 |  | 2022 |  | 2021
| (In thousands)
U.S. federal income taxes | $ | 388,534 |  |  | $ | 353,825 |  |  | $ | 158,762 |
State and local income taxes | 78,805 |  |  | 45,502 |  |  | 17,808 |
Foreign income taxes | 47,892 |  |  | (11,322) |  |  | (116,051) |
Total | $ | 515,231 |  |  | $ | 388,005 |  |  | $ | 60,519 |
The current and deferred components of the income tax provisions for each fiscal year are as follows:
| 2023 |  | 2022 |  | 2021
| (In thousands)
Current | $ | 531,665 |  |  | $ | 452,459 |  |  | $ | 218,383 |
Deferred | (16,434) |  |  | (64,454) |  |  | (157,864) |
Total | $ | 515,231 |  |  | $ | 388,005 |  |  | $ | 60,519 |
The deferred tax provisions result from the effects of net changes during the year in deferred tax assets and liabilities arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Effective Tax Rates Reconciliations of the statutory federal income tax rate to the effective income tax rates for each fiscal year are as follows:
| 2023 |  | 2022 |  | 2021
U.S. statutory federal income tax rate | 21.00 | % |  | 21.00 | % |  | 21.00 | %
State and local income taxes, net of any applicable federal income tax benefit | 2.63 |  |  | 2.41 |  |  | 2.67 |
Foreign income taxes | (1.08) |  |  | (1.88) |  |  | (9.99) |
Uncertain tax positions | 0.06 |  |  | 0.83 |  |  | (0.38) |
Tax benefit of equity-based compensation | (0.11) |  |  | (0.16) |  |  | (1.07) |
Other | 0.05 |  |  | 0.01 |  |  | (1.88) |
Effective income tax rate | 22.55 | % |  | 22.21 | % |  | 10.35 | %
The effective tax rate of 22.55% for fiscal 2023 was impacted by (1) state income tax expense of $60.1 million and (2) earnings from our foreign operations which are taxed at rates different than our domestic tax rate, as well as credits, local permanent differences and other minimum taxes, which resulted in a net increase in the effective tax rate. The effective tax rate of 22.21% for fiscal 2022 was impacted by (1) state income tax expense of $42.2 million and (2) earnings from our foreign operations which are taxed at rates different than our domestic tax rate, as well as credits, local permanent differences and other minimum taxes. Deferred Tax Assets and Liabilities Significant components of Sysco’s deferred tax assets and liabilities are as follows:
| Jul. 1, 2023 |  | Jul. 2, 2022
| (In thousands)
Deferred tax assets: |  |  |
Net operating tax loss carryforwards | $ | 536,582 |  |  | $ | 483,165 |
Interest carryforwards | 204,880 |  |  | 169,642 |
Operating lease liabilities | 170,982 |  |  | 161,684 |
Pension | 101,359 |  |  | 71,722 |
Receivables | 50,831 |  |  | 43,108 |
Inventory | 26,540 |  |  | 24,394 |
Deferred compensation | 26,441 |  |  | 27,984 |
Share-based compensation | 24,080 |  |  | 30,395 |
Other | 60,689 |  |  | 97,249 |
Deferred tax assets before valuation allowances | 1,202,384 |  |  | 1,109,343 |
Valuation allowances | (267,388) |  |  | (240,591) |
Total deferred tax assets | 934,996 |  |  | 868,752 |
Deferred tax liabilities: |  |  |
Goodwill and intangible assets | 363,534 |  |  | 379,018 |
Excess tax depreciation and basis differences of assets | 237,998 |  |  | 150,578 |
Operating lease assets | 171,812 |  |  | 161,163 |
Foreign currency remeasurement losses and currency hedge | 16,264 |  |  | — |
Other | 27,842 |  |  | 50,560 |
Total deferred tax liabilities | 817,450 |  |  | 741,319 |
Total net deferred tax assets | $ | 117,546 |  |  | $ | 127,433 |
The company’s deferred tax asset for net operating loss carryforwards as of July 1, 2023 and July 2, 2022 consisted of state and foreign net operating tax loss carryforwards. The state net operating loss carryforwards outstanding as of July 1, 2023 expire in fiscal years 2024 through 2043, with some losses having unlimited carryforward periods. The foreign net operating loss carryforward periods vary by jurisdiction, from 5 years to unlimited. The company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. As a result of the company’s analysis, it was concluded that, as of July 1, 2023, a valuation allowance of $267.4 million should be established against the portion of the deferred tax asset attributable to capital losses, certain state interest, and foreign and U.S. state losses. The company will continue to monitor facts and circumstances in the reassessment of the likelihood that net operating loss carryforwards will be realized. Uncertain Tax Positions A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:
| 2023 |  | 2022
| (In thousands)
Unrecognized tax benefits at beginning of year | $ | 32,400 |  |  | $ | 20,400 |
Additions for tax positions related to prior years | — |  |  | 12,000 |
Unrecognized tax benefits at end of year | $ | 32,400 |  |  | $ | 32,400 |
As of July 1, 2023, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $7.8 million. As of July 2, 2022, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $6.2 million. The expense recorded for interest and penalties related to unrecognized tax benefits was not material in any year presented. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months. At this time, an estimate of the range of the reasonably possible change cannot be made. During the third quarter of fiscal 2023, Sysco received a Statutory Notice of Deficiency from the Internal Revenue Service, mainly related to foreign tax credits generated in fiscal 2018 from repatriated earnings primarily from our Canadian operations. In the fourth quarter (April 18th) of fiscal 2023, the company filed suit in the U.S. Tax Court challenging the validity of certain tax regulations related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act of 2017 (TCJA). The lawsuit seeks to have the court invalidate these regulations, which would affirm the company’s position regarding its foreign tax credits. Sysco has previously recorded a benefit of $131.0 million attributable to its interpretation of the TCJA and the Internal Revenue Code. If the company is ultimately unsuccessful in defending its position, it may be required to reverse all, or some portion, of the benefit previously recorded. If Sysco were to recognize all unrecognized tax benefits recorded as of July 1, 2023, approximately $32.3 million of the $32.4 million reserve would reduce the effective tax rate. If Sysco were to recognize all unrecognized tax benefits recorded as of July 2, 2022, approximately $32.3 million of the $32.4 million reserve would reduce the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months either because Sysco’s positions are sustained on audit or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the consideration of various filing requirements in various jurisdictions and the allocation of income and expense between tax jurisdictions. In addition, the amount of unrecognized tax benefits recognized within the next twelve months may decrease due to the expiration of the statute of limitations for certain years in various jurisdictions; however, it is possible that a jurisdiction may open an audit on one of these years prior to the statute of limitations expiring. Sysco anticipates an immaterial decrease to the reserve within twelve months as a result of lapse of statutes. Sysco’s federal tax returns for 2019 and subsequent tax years have statutes of limitations that remain open for audit. As of July 1, 2023, Sysco’s tax returns in the majority of the state and local and material foreign jurisdictions are no longer subject to audit for the years before 2016. Other Sysco intends to indefinitely reinvest income of its foreign operations except for income from a Singapore entity, and, as a result, no material accruals have been made with respect to the tax effects of unremitted earnings from these reinvested foreign earnings, including impacts of outside basis differences and withholding taxes. The Singapore income for which we are not claiming permanent reinvestment only relates to income for fiscal year 2023 and forward. The Company has not recorded any withholding tax liability on the current year undistributed Singapore earnings, as the distribution of this income to the U.S. would not result in any income or withholding tax liability. As a result of the U.S. Tax Cuts and Jobs Act, unremitted earnings prior to the effective date of the act have been subject to U.S. income tax. Any residual tax effects, including foreign withholding taxes, are immaterial to the financial statements. The Inflation Reduction Act of 2022 (Inflation Reduction Act) was enacted on August 16, 2022. The Inflation Reduction Act imposes a new 15% corporate alternative minimum tax (CAMT) on “applicable corporations” for taxable years beginning after December 31, 2022. The CAMT is imposed to the extent the alternative minimum tax exceeds a corporation’s regular tax liability. A corporation that pays alternative minimum tax is eligible for a credit against income tax in future years. Sysco does not currently expect that the implementation of the new standard will have a material effect on its financial statements. On October 8, 2021, the Organization for Economic Co-operation and Development (OECD) announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which provides for a two-pillar solution to address tax challenges arising from the digitalization of the economy. Pillar One expands a country’s authority to tax profits from companies that make sales into their country but do not have a physical location in the country. Pillar Two includes an agreement on international tax reform, including rules to ensure that large corporations pay a minimum rate of corporate income tax. On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15%. The OECD continues to release additional guidance on the two-pillar framework, with widespread implementation anticipated by 2024. We are continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by individual countries, including the United Kingdom, where the rules will be effective January 1, 2024. The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects income earned and taxed in the various U.S. federal and state, as well as foreign jurisdictions. Tax law changes, increases or decreases in permanent book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

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