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Income Taxes | 12 Months Ended
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Sep. 30, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Detail of the provision for income taxes from continuing operations consists of the following for fiscal years 2023, 2022 and 2021 (in millions):
| 2023 |  | 2022 |  | 2021
Federal | $ | (39) |  |  | $ | 764 |  |  | $ | 791 |
State | (38) |  |  | 94 |  |  | 163 |
Foreign | 48 |  |  | 42 |  |  | 27 |
| $ | (29) |  |  | $ | 900 |  |  | $ | 981 |
Current | $ | 154 |  |  | $ | 636 |  |  | $ | 1,106 |
Deferred | (183) |  |  | 264 |  |  | (125) |
| $ | (29) |  |  | $ | 900 |  |  | $ | 981 |
The reasons for the difference between the statutory federal income tax rate and our effective income tax rate from continuing operations are as follows for fiscal years 2023, 2022 and 2021:
| 2023 |  | 2022 |  | 2021
Federal income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes | (0.7) |  |  | 2.9 |  |  | 3.3 |
Foreign-derived intangible income deduction | — |  |  | (1.0) |  |  | (1.1) |
Deferred income tax remeasurement | 3.8 |  |  | (0.9) |  |  | — |
General business credits | 3.4 |  |  | (0.5) |  |  | (0.5) |
Goodwill | (24.2) |  |  | — |  |  | 1.8 |
Other | 1.0 |  |  | 0.2 |  |  | (0.2) |
| 4.3 | % |  | 21.7 | % |  | 24.3 | %
During fiscal 2023, state tax benefit, net of federal impact, was $21 million, which includes $26 million benefit related to the remeasurement of deferred income taxes, primarily due to legislation decreasing state tax rates enacted in fiscal 2023. Non-deductible goodwill impairments unfavorably impacted the effective tax rate by 24.2%. The tax benefit from income tax credits was $23 million. 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%. Approximately ($643) million, $4,025 million and $3,963 million of income (loss) from continuing operations before income taxes for fiscal 2023, 2022 and 2021, 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 September 30, 2023 and October 1, 2022, are as follows (in millions):
| 2023 |  | 2022
| Assets |  | Liabilities |  | Assets |  | Liabilities
Property, plant and equipment | $ | — |  |  | $ | 1,030 |  |  | $ | — |  |  | $ | 1,091 |
Intangible assets | — |  |  | 1,495 |  |  | — |  |  | 1,515 |
ROU assets | — |  |  | 150 |  |  | — |  |  | 144 |
Accrued expenses | 400 |  |  | — |  |  | 410 |  |  | — |
Lease liabilities | 135 |  |  | — |  |  | 126 |  |  | — |
Net operating loss and other carryforwards | 192 |  |  | — |  |  | 198 |  |  | — |
Other | 193 |  |  | 346 |  |  | 87 |  |  | 326 |
| $ | 920 |  |  | $ | 3,021 |  |  | $ | 821 |  |  | $ | 3,076 |
Valuation allowance | $ | (199) |  |  |  |  | $ | (195) |  |  |
Net deferred tax liability |  |  | $ | 2,300 |  |  |  |  | $ | 2,450 |
At September 30, 2023, our gross state net operating loss carryforwards approximated $1,710 million, of which $1,466 million expire in fiscal years 2024 through 2043, and the remainder has no expiration. Gross foreign net operating loss carryforwards approximated $302 million, of which $116 million expire in fiscal years 2024 through 2043, and the remainder has no expiration. We also have tax credit carryforwards of approximately $44 million which expire in fiscal years 2024 through 2038. We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $667 million at September 30, 2023. 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 as of September 30, 2023, October 1, 2022 and October 2, 2021 (in millions):
| 2023 |  | 2022 |  | 2021
Balance as of the beginning of the year | $ | 152 |  |  | $ | 152 |  |  | $ | 165 |
Increases related to current year tax positions | 7 |  |  | 16 |  |  | 25 |
Increases related to prior year tax positions | 1 |  |  | 20 |  |  | 7 |
Reductions related to prior year tax positions | (12) |  |  | (13) |  |  | (7) |
Reductions related to settlements | — |  |  | (3) |  |  | (1) |
Reductions related to expirations of statutes of limitations | (17) |  |  | (20) |  |  | (37) |
Balance as of the end of the year | $ | 131 |  |  | $ | 152 |  |  | $ | 152 |
The amount of unrecognized tax benefits, if recognized, that would impact our effective tax rate was $98 million at September 30, 2023 and $112 million at October 1, 2022. We classify interest and penalties on unrecognized tax benefits as income tax expense. At September 30, 2023, and October 1, 2022, before tax benefits, we had $50 million and $47 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 September 30, 2023, the assessment totaled approximately $488 million (8.6 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 September 30, 2023, certain United States federal income tax returns are subject to examination for fiscal years 2019 through 2022. We are also subject to income tax examinations by major state and foreign jurisdictions for fiscal years 2014 through 2022 and 2018 through 2022, 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. These changes did not have any impact on our provision for income taxes or financial statements in fiscal 2023.

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