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Income Taxes
 12 Months Ended
Oct. 01, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXESDetail of the provision for income taxes from continuing operations consists of the following (in millions):
202220212020
Federal$764 $791 $477 
State94 163 98 
Foreign42 27 18 
 $900 $981 $593 
Current$636 $1,106 $575 
Deferred264 (125)18 
 $900 $981 $593 
The reasons for the difference between the statutory federal income tax rate and our effective income tax rate from continuing operations are as follows:
202220212020
Federal income tax rate21.0 %21.0 %21.0 %
State income taxes2.0 3.3 2.9 
Foreign-derived intangible income deduction(1.0)(1.1)(0.6)
Goodwill— 1.8 — 
Other(0.3)(0.7)(1.0)
21.7 %24.3 %22.3 %
During fiscal 2022, state tax expense, net of federal benefit, was $83 million, which includes $36 million benefit related to the remeasurement of deferred income taxes, primarily due to legislation decreasing state tax rates enacted in fiscal 2022. The tax benefit from foreign-derived intangible income deduction was $42 million.
During fiscal 2021, state tax expense, net of federal benefit, was $135 million, and the tax benefit from foreign-derived intangible income deduction was $44 million. Non-deductible goodwill associated with the sale of our pet treats business increased the effective tax rate by 1.8%.
During fiscal 2020, state tax expense, net of federal benefit, was $78 million.
Approximately $4,025 million, $3,963 million and $2,605 million of income from continuing operations before income taxes for fiscal 2022, 2021 and 2020, respectively, were from our operations based in the United States.
We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The tax effects of major items recorded as deferred tax assets and liabilities as of October 1, 2022, and October 2, 2021, are as follows (in millions):
20222021
AssetsLiabilitiesAssetsLiabilities
Property, plant and equipment$— $1,091 $— $990 
Intangible assets— 1,515 — 1,564 
ROU assets— 144 — 158 
Accrued expenses410 — 558 — 
Lease liabilities126 — 133 — 
Net operating loss and other carryforwards198 — 167 — 
Other87 326 79 251 
$821 $3,076 $937 $2,963 
Valuation allowance$(195)$(151)
Net deferred tax liability$2,450 $2,177 
At October 1, 2022, our gross state net operating loss carryforwards approximated $1,480 million, of which $1,345 million expire in fiscal years 2023 through 2042, and the remainder has no expiration. Gross foreign net operating loss carryforwards approximated $321 million, of which $137 million expire in fiscal years 2023 through 2038, and the remainder has no expiration. We also have tax credit carryforwards of approximately $52 million which expire in fiscal years 2023 through 2037.
We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $570 million at October 1, 2022. Our undistributed earnings are generally expected to be indefinitely reinvested outside of the United States, except for excess cash (net of applicable withholding taxes) not subject to regulatory requirements. Dividends after December 31, 2017 from foreign subsidiaries are generally not subject to U.S. federal income taxes. Accordingly, no deferred income taxes have been provided on these earnings, and due to the uncertainty of the manner in which the outside basis difference associated with these earnings would reverse, it is not currently practicable to estimate the tax liability that might be payable on the repatriation of these foreign earnings; however, we do not expect any tax due to be material.
The following table summarizes the activity related to our gross unrecognized tax benefits at October 1, 2022, October 2, 2021, and October 3, 2020 (in millions):
202220212020
Balance as of the beginning of the year$152 $165 $169 
Increases related to current year tax positions16 25 21 
Increases related to prior year tax positions20 7 5 
Reductions related to prior year tax positions(13)(7)(9)
Reductions related to settlements(3)(1)(3)
Reductions related to expirations of statutes of limitations(20)(37)(18)
Balance as of the end of the year$152 $152 $165 
The amount of unrecognized tax benefits, if recognized, that would impact our effective tax rate was $112 million at October 1, 2022 and $111 million at October 2, 2021. We classify interest and penalties on unrecognized tax benefits as income tax expense. At October 1, 2022, and October 2, 2021, before tax benefits, we had $47 million and $49 million, respectively, of accrued interest and penalties on unrecognized tax benefits.
In December 2021, we received an assessment from the Mexican tax authorities related to the 2015 sale of our direct and indirect equity interests in subsidiaries which held our Mexico operations. At October 1, 2022, the assessment totaled approximately $411 million (8.3 billion Mexican pesos), which includes tax, inflation adjustment, interest and penalties. We believe the assertions made in the assessment letter have no merit and will defend our positions through the Mexican administrative appeal process and litigation, if necessary. Based on our analysis of this assessment in accordance with FASB guidance related to unrecognized tax benefits, we have not recorded a liability related to the issue.
As of October 1, 2022, certain United States federal income tax returns are subject to examination for fiscal years 2013 through 2021. We are also subject to income tax examinations by major state and foreign jurisdictions for fiscal years 2015 through 2021 and 2017 through 2021, respectively. We do not expect material changes to our unrecognized tax benefits during the next twelve months.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA made several changes to the U.S. tax code effective after December 31, 2022, including, but not limited to, a 15% minimum tax on large corporations with average annual financial statement income of more than $1 billion for a three tax-year period and a 1% excise tax on public company stock buybacks, which will be accounted for in treasury stock. We do not expect these changes to have a material impact on our provision for income taxes or financial statements.