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Income Taxes | 12 Months Ended
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Sep. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of income before income taxes from continuing operations are presented below.
| 2020 |  | 2019 |  | 2018
| (in millions)
U.S. | $ | 89.7 |  |  | $ | 78.4 |  |  | $ | 97.3 |
Non-U.S. | 4.4 |  |  | 3.7 |  |  | (1.6) |
Income before income taxes | $ | 94.1 |  |  | $ | 82.1 |  |  | $ | 95.7 |
On December 22, 2017, HR-1, commonly referred to as the Tax Cuts and Jobs Act (“Act”), was enacted, which made significant revisions to federal income tax laws, including lowering the corporate income tax rate to 21% from 35% effective January 1, 2018, overhauling the taxation of income earned outside the United States and eliminating or limiting certain deductions. Our deferred tax assets and liabilities are recorded at the enacted tax rates in effect when we expect to recognize the related tax expenses or benefits. The average of these rates varies slightly from year to year but historically had been approximately 39%. With the legislation changing rates taking place in the quarter ended December 31, 2017, we remeasured our deferred tax items at an average rate of approximately 25% and recorded an income tax benefit of $42.5 million. The Act also imposed a one-time transition tax on the undistributed, previously-untaxed, post-1986 foreign “earnings and profits” (as defined by the IRS) of certain U.S.-owned corporations. In 2018, we recorded a provisional transition tax of $7.5 million for the one-time deemed repatriation tax on accumulated foreign earnings of our foreign subsidiaries. We finalized our calculation of this transition tax liability during 2019 and reduced our initial provision by $0.6 million. At September 30, 2020, the remaining balance of our transition obligation is $5.8 million, which will be paid annually through January 2026, as provided in the Act. Other than for Krausz’s investment in its U.S. subsidiary, we have not provided income taxes for unrepatriated foreign earnings that may be subject to withholding tax or any outside basis differences inherent in our foreign subsidiaries, as these amounts continue to be indefinitely reinvested in foreign operations. We have a foreign tax credit carryforward of $4.5 million, which we have not recognized because we do not expect to utilize it prior to expiration. The federal income tax returns for Mueller Co. and Anvil are closed for years prior to 2005 and for Mueller Water Products, Inc. for 2007 and 2008. Our 2009 through 2015 returns are closed except to the extent net operating losses from those years have been utilized on subsequent years’ returns. We also remain liable for any taxes related to U.S. Pipe income for periods prior to 2012 pursuant to the terms of the sale agreement with the purchaser of the segment. Our state income tax returns are generally closed for years prior to 2016, except to the extent of our state net operating loss carryforwards. Our Canadian income tax returns are generally closed for years prior to 2013. We do not have any material unpaid assessments. The components of income tax (benefit) expense are presented below.
| 2020 |  | 2019 |  | 2018
| (in millions)
Current: |  |  |  |  |
U.S. federal | $ | 10.9 |  |  | $ | 11.6 |  |  | $ | 25.7 |
U.S. state and local | 2.7 |  |  | 3.9 |  |  | 7.1 |
Non-U.S. | 1.3 |  |  | 1.5 |  |  | 0.6 |
| 14.9 |  |  | 17.0 |  |  | 33.4 |
Deferred: |  |  |  |  |
U.S. federal | 5.6 |  |  | 2.5 |  |  | (42.6) |
U.S. state and local | 2.0 |  |  | (0.4) |  |  | (1.0) |
Non-U.S. | (0.4) |  |  | (0.8) |  |  | 0.3 |
| 7.2 |  |  | 1.3 |  |  | (43.3) |
Income tax (benefit) expense | $ | 22.1 |  |  | $ | 18.3 |  |  | $ | (9.9) |
The reconciliation between income tax expense at the U.S. federal statutory income tax rate and reported income tax expense is presented below.
| 2020 |  | 2019 |  | 2018
| (in millions)
Expense at U.S. federal statutory income tax rates of 21%, 24.5% and 35%, respectively | $ | 19.8 |  |  | $ | 17.2 |  |  | $ | 23.4 |
Adjustments to reconcile to income tax expense: |  |  |  |  |
State income taxes, net of federal benefit | 3.3 |  |  | 3.2 |  |  | 4.8 |
Uncertain tax positions | 1.0 |  |  | (1.4) |  |  | — |
Nondeductible compensation | 0.6 |  |  | 0.3 |  |  | 0.2 |
Nondeductible expenses, other than compensation | 0.4 |  |  | 1.3 |  |  | 0.5 |
Valuation allowances | 0.1 |  |  | 1.3 |  |  | 0.5 |
Basis difference in foreign investment | 0.1 |  |  | (1.1) |  |  | — |
Foreign income taxes | — |  |  | 0.1 |  |  | — |
Domestic production activities deduction | — |  |  | — |  |  | (2.4) |
Federal tax rate change | — |  |  | — |  |  | (42.5) |
Federal transition tax | — |  |  | (0.6) |  |  | 7.5 |
Excess tax benefits related to stock compensation | (0.5) |  |  | (0.3) |  |  | (0.6) |
Tax credits | (1.8) |  |  | (1.8) |  |  | (1.7) |
Other | (0.9) |  |  | 0.1 |  |  | 0.4 |
Income tax expense (benefit) | $ | 22.1 |  |  | $ | 18.3 |  |  | $ | (9.9) |
The following table summarizes information concerning our gross unrecognized tax benefits.
| 2020 |  | 2019
| (in millions)
Balance at beginning of year | $ | 3.3 |  |  | $ | 3.3 |
Increases related to current year positions | 1.5 |  |  | 0.4 |
Increases related to prior year positions | — |  |  | 2.0 |
Decreases due to lapse in statute of limitations | (0.3) |  |  | (2.4) |
Balance at end of year | $ | 4.5 |  |  | $ | 3.3 |
Substantially all unrecognized tax benefits would, if recognized, impact the effective tax rate. We recognize interest related to uncertain tax positions as interest expense and recognize any penalties incurred as a component of selling, general and administrative expenses. At September 30, 2020 and 2019, we had $0.4 million and $0.3 million, respectively, of accrued interest expense related to unrecognized tax benefits. Deferred income tax balances are presented below.
| September 30,
| 2020 |  | 2019
| (in millions)
Deferred income tax assets: |  |  |
Accrued expenses | $ | 12.2 |  |  | $ | 10.0 |
Lease liabilities | 7.3 |  |  | — |
Inventory | 4.6 |  |  | 11.7 |
State net operating losses | 3.0 |  |  | 2.8 |
Federal credit carryovers | 3.0 |  |  | 2.8 |
Stock-based compensation | 2.6 |  |  | 2.7 |
Pension | 0.2 |  |  | 1.7 |
Other | 1.1 |  |  | 2.4 |
| 34.0 |  |  | 34.1 |
Valuation allowance | (2.9) |  |  | (2.8) |
Total deferred income tax assets, net of valuation allowance | 31.1 |  |  | 31.3 |
Deferred income tax liabilities: |  |  |
Intangible assets | 90.2 |  |  | 95.6 |
Lease assets | 6.6 |  |  | — |
Basis difference in foreign investment | 5.0 |  |  | 4.7 |
Other | 25.6 |  |  | 18.9 |
Total deferred income tax liabilities | 127.4 |  |  | 119.2 |
Net deferred income tax liabilities | $ | 96.3 |  |  | $ | 87.9 |
We reevaluate the need for a valuation allowance against our deferred tax assets each quarter, considering results to date, projections of taxable income, tax planning strategies and reversing taxable temporary differences. Our state net operating loss carryforwards, which expire between years 2024 and 2032, remain available to offset future taxable 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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