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Income Taxes | 12 Months Ended
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Jan. 02, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The source of earnings before income taxes and equity earnings consisted of the following:
(Amounts in millions) |  | 2020 |  | 2019 |  | 2018
United States |  | $ | 715.9 |  |  | $ | 765.3 |  |  | $ | 735.4 |
Foreign |  | 119.3 |  |  | 156.8 |  |  | 174.5 |
Total |  | $ | 835.2 |  |  | $ | 922.1 |  |  | $ | 909.9 |
The provision (benefit) for income taxes consisted of the following:
(Amounts in millions) |  | 2020 |  | 2019 |  | 2018
Current: |  |  |  |  |  |
Federal |  | $ | 136.8 |  |  | $ | 110.0 |  |  | $ | 117.9 |
Foreign |  | 29.9 |  |  | 38.1 |  |  | 52.4 |
State |  | 30.6 |  |  | 29.5 |  |  | 30.4 |
Total current |  | 197.3 |  |  | 177.6 |  |  | 200.7 |
Deferred: |  |  |  |  |  |
Federal |  | (10.0) |  |  | 26.6 |  |  | 18.7 |
Foreign |  | 3.0 |  |  | 1.5 |  |  | (8.4) |
State |  | (1.2) |  |  | 6.1 |  |  | 3.4 |
Total deferred |  | (8.2) |  |  | 34.2 |  |  | 13.7 |
Total income tax provision |  | $ | 189.1 |  |  | $ | 211.8 |  |  | $ | 214.4 |
The following is a reconciliation of the statutory federal income tax rate to Snap-on’s effective tax rate:
|  | 2020 |  | 2019 |  | 2018
Statutory federal income tax rate |  | 21.0% |  | 21.0% |  | 21.0%
Increase (decrease) in tax rate resulting from: |  |  |  |  |  |
State income taxes, net of federal benefit |  | 2.9 |  | 2.9 |  | 2.9
Noncontrolling interests |  | (0.5) |  | (0.4) |  | (0.4)
Repatriation of foreign earnings |  | (0.7) |  | (0.1) |  | (0.1)
Change in valuation allowance for deferred tax assets |  | 0.5 |  | 0.4 |  | 0.3
Adjustments to tax accruals and reserves |  | (0.5) |  | (0.4) |  | (0.2)
Foreign rate differences |  | 0.5 |  | 0.4 |  | 0.4
Excess tax benefits related to equity compensation |  | (0.5) |  | (0.5) |  | (0.8)
U.S. tax reform, net impact |  | — |  | — |  | 0.4
Other |  | (0.1) |  | (0.3) |  | 0.1
Effective tax rate |  | 22.6% |  | 23.0% |  | 23.6%
Snap-on’s effective income tax rate on earnings attributable to Snap-on Incorporated was 23.2% in 2020, 23.4% in 2019, and 24.0% in 2018. The effective tax rate for 2018 included an additional non-recurring net tax charge attributable to the prior year’s U.S. tax reform changes. On December 22, 2017, the U.S. government passed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries; and (iii) bonus depreciation that allows for full expensing of qualified property. The Tax Act also established new tax laws that affect years after 2017, including, but not limited to: (i) the reduction of the U.S. federal corporate tax rate discussed above; (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (iii) a new provision designed to tax global intangible low-taxed income (“GILTI”); (iv) the repeal of the domestic production activity deductions; (v) limitations on the deductibility of certain executive compensation; (vi) limitations on the use of foreign tax credits to reduce the U.S. income tax liability; and (vii) a new provision that allows a domestic corporation an immediate deduction for a portion of its foreign derived intangible income (“FDII”). During 2018, the company recorded additional net tax benefits of $4.4 million attributable to pension contributions made in 2018 that were deductible for 2017 at the higher 35% federal tax rate and other changes to the 2017 tax provision related to the Tax Act and subsequently-issued tax guidance. Due to the complexity of the new GILTI tax rules, the company continued to evaluate this provision of the Tax Act and the application of Accounting Standards Codification (“ASC”) 740 throughout 2018. Under GAAP, the company is allowed to make an accounting policy choice to either: (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”); or (ii) factor in such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The company selected to apply the “period cost method” to account for the new GILTI tax, and treated it as a current-period expense for 2020, 2019 and 2018. Temporary differences that give rise to the net deferred income tax asset (liability) as of 2020, 2019 and 2018 year end are as follows:
(Amounts in millions) |  | 2020 |  | 2019 |  | 2018
Deferred income tax assets (liabilities): |  |  |  |  |  |
Inventories |  | $ | 41.4 |  |  | $ | 34.7 |  |  | $ | 33.6 |
Accruals not currently deductible |  | 75.1 |  |  | 62.4 |  |  | 72.9 |
Tax credit carryforward |  | 2.4 |  |  | 2.0 |  |  | 1.8 |
Employee benefits |  | 32.4 |  |  | 41.3 |  |  | 56.5 |
Net operating losses |  | 37.1 |  |  | 40.4 |  |  | 40.9 |
Depreciation and amortization |  | (192.0) |  |  | (178.9) |  |  | (167.5) |
Valuation allowance |  | (26.7) |  |  | (27.8) |  |  | (25.1) |
Equity-based compensation |  | 14.3 |  |  | 16.2 |  |  | 16.6 |
Undistributed non-U.S. earnings |  | (5.4) |  |  | (6.6) |  |  | (6.0) |
Other |  | 1.3 |  |  | (0.7) |  |  | (0.4) |
Net deferred income tax asset (liability) |  | $ | (20.1) |  |  | $ | (17.0) |  |  | $ | 23.3 |
As of 2020 year end, Snap-on had tax net operating loss carryforwards totaling $184.1 million as follows:
(Amounts in millions) |  | State |  | Federal |  | Foreign |  | Total
Year of expiration: |  |  |  |  |  |  |  |
2021-2025 |  | $ | 0.3 |  |  | $ | — |  |  | $ | 58.5 |  |  | $ | 58.8 |
2026-2030 |  | — |  |  | — |  |  | 10.4 |  |  | 10.4 |
2031-2035 |  | 56.7 |  |  | — |  |  | — |  |  | 56.7 |
2036-2040 |  | — |  |  | — |  |  | — |  |  | — |
2041-2045 |  | — |  |  | — |  |  | 31.9 |  |  | 31.9 |
Indefinite |  | — |  |  | — |  |  | 26.3 |  |  | 26.3 |
Total net operating loss carryforwards |  | $ | 57.0 |  |  | $ | — |  |  | $ | 127.1 |  |  | $ | 184.1 |
A valuation allowance totaling $26.7 million, $27.8 million and $25.1 million as of 2020, 2019 and 2018 year end, respectively, has been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be realized. Realization of the net deferred income tax assets is dependent on generating sufficient taxable income prior to their expiration. Although realization is not assured, management believes it is more-likely-than-not that the net deferred income tax assets will be realized. The amount of the net deferred income tax assets considered realizable, however, could change in the near term if estimates of future taxable income during the carryforward period fluctuate. The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2020, 2019 and 2018:
(Amounts in millions) |  | 2020 |  | 2019 |  | 2018
Unrecognized tax benefits at beginning of year |  | $ | 10.3 |  |  | $ | 11.1 |  |  | $ | 7.7 |
Gross increases – tax positions in prior periods |  | 0.4 |  |  | — |  |  | 1.3 |
Gross decreases – tax positions in prior periods |  | — |  |  | (0.6) |  |  | (0.1) |
Gross increases – tax positions in the current period |  | 0.4 |  |  | 0.5 |  |  | 2.8 |
Settlements with taxing authorities |  | (1.4) |  |  | — |  |  | — |
Lapsing of statutes of limitations |  | (0.6) |  |  | (0.7) |  |  | (0.6) |
Unrecognized tax benefits at end of year |  | $ | 9.1 |  |  | $ | 10.3 |  |  | $ | 11.1 |
The unrecognized tax benefits of $9.1 million, $10.3 million and $11.1 million as of 2020, 2019 and 2018 year end, respectively, would impact the effective income tax rate if recognized. As of January 2, 2021, unrecognized tax benefits of $1.4 million and $7.7 million were included in “Deferred income tax assets” and “Other long-term liabilities,” respectively, on the accompanying Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. As of 2020, 2019 and 2018 year end, the company had provided for $1.1 million, $1.1 million and $0.8 million, respectively, of accrued interest and penalties related to unrecognized tax benefits. As of January 2, 2021, $1.1 million of accrued interest and penalties were included in “Other long-term liabilities” on the accompanying Consolidated Balance Sheets. Snap-on and its subsidiaries file income tax returns in the United States and in various state, local and foreign jurisdictions. It is reasonably possible that certain unrecognized tax benefits may either be settled with taxing authorities or the statutes of limitations for such items may lapse within the next 12 months, causing Snap-on’s gross unrecognized tax benefits to decrease by a range of zero to $0.7 million. Over the next 12 months, Snap-on anticipates taking certain tax positions on various tax returns for which the related tax benefit does not meet the recognition threshold. Accordingly, Snap-on’s gross unrecognized tax benefits may increase by a range of zero to $0.8 million over the next 12 months for uncertain tax positions expected to be taken in future tax filings. With few exceptions, Snap-on is no longer subject to U.S. federal and state/local income tax examinations by tax authorities for years prior to 2017, and Snap-on is no longer subject to non-U.S. income tax examinations by tax authorities for years prior to 2012. In general, it is Snap-on’s practice and intention to reinvest certain earnings of its non-U.S. subsidiaries in those operations. As of 2020 year end, the company has not made a provision for incremental U.S. income taxes or additional foreign withholding taxes on approximately $319.1 million of such undistributed earnings that is deemed indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable. As a result of the Tax Act, which subjected the majority of the company’s undistributed foreign earnings to taxation for the 2017 tax year, the company can now repatriate non-U.S. cash in a tax efficient manner. Accordingly, the company has reversed its prior assertion concerning the indefinite reinvestment of the majority of its undistributed foreign earnings and has recorded a deferred tax liability of $5.4 million for the incremental tax costs associated with the future potential repatriation of such earnings.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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