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INCOME TAXES | 12 Months Ended
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Sep. 30, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The provision (benefit) for income taxes allocated to continuing operations consisted of the following:
| Year Ended September 30,
| 2021 |  | 2020 |  | 2019
Current: |  |  |  |  |
Federal | $ | 113.7 |  |  | $ | 104.3 |  |  | $ | 169.3 |
State | 31.6 |  |  | 25.3 |  |  | 20.3 |
Foreign | 2.7 |  |  | 0.3 |  |  | 4.2 |
Total Current | 148.0 |  |  | 129.9 |  |  | 193.8 |
Deferred: |  |  |  |  |
Federal | 9.1 |  |  | (1.6) |  |  | (40.6) |
State | 1.5 |  |  | (2.0) |  |  | (5.4) |
Foreign | 1.2 |  |  | (2.6) |  |  | (2.9) |
Total Deferred | 11.8 |  |  | (6.2) |  |  | (48.9) |
Income tax expense from continuing operations | $ | 159.8 |  |  | $ | 123.7 |  |  | $ | 144.9 |
The domestic and foreign components of income from continuing operations before income taxes were as follows:
| Year Ended September 30,
| 2021 |  | 2020 |  | 2019
Domestic | $ | 670.2 |  |  | $ | 483.7 |  |  | $ | 554.7 |
Foreign | 6.9 |  |  | 26.9 |  |  | 26.9 |
Income from continuing operations before income taxes | $ | 677.1 |  |  | $ | 510.6 |  |  | $ | 581.6 |
A reconciliation of the federal corporate income tax rate and the effective tax rate on income from continuing operations before income taxes is summarized below:
| Year Ended September 30,
| 2021 |  | 2020 |  | 2019
Statutory income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Effect of foreign operations | (0.1) |  |  | (0.7) |  |  | 0.3 |
State taxes, net of federal benefit | 3.9 |  |  | 3.5 |  |  | 1.8 |
Effect of other permanent differences | (1.1) |  |  | — |  |  | (0.2) |
Research and Experimentation and other federal tax credits | (0.2) |  |  | (0.3) |  |  | (0.3) |
Effect of tax contingencies | — |  |  | 0.1 |  |  | 1.9 |
Other | 0.1 |  |  | 0.6 |  |  | 0.4 |
Effective income tax rate | 23.6 | % |  | 24.2 | % |  | 24.9 | %
Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities, and operating loss and tax credit carryforwards for tax purposes. The components of the deferred income tax assets and liabilities were as follows:
| September 30,
| 2021 |  | 2020
DEFERRED TAX ASSETS |  |  |
Lease liabilities | $ | 71.0 |  |  | $ | 37.0 |
Accrued liabilities | 65.6 |  |  | 63.0 |
Inventories | 16.8 |  |  | 15.1 |
Foreign tax credit carryovers | 14.9 |  |  | 17.2 |
Net operating loss carryovers | 14.2 |  |  | 14.7 |
Accounts receivable | 8.5 |  |  | 5.9 |
Postretirement benefits | 0.9 |  |  | 6.5 |
Other | 4.1 |  |  | 7.2 |
Gross deferred tax assets | 196.0 |  |  | 166.6 |
Valuation allowance | (32.3) |  |  | (33.8) |
Total deferred tax assets | 163.7 |  |  | 132.8 |
DEFERRED TAX LIABILITIES |  |  |
Intangible assets | (73.3) |  |  | (65.6) |
Lease right-of-use assets | (69.6) |  |  | (35.9) |
Property, plant and equipment | (55.8) |  |  | (52.7) |
Outside basis difference in equity investments | (7.2) |  |  | — |
Other | (5.6) |  |  | (3.8) |
Total deferred tax liabilities | (211.5) |  |  | (158.0) |
Net deferred tax liability | $ | (47.8) |  |  | $ | (25.2) |
GAAP requires that a valuation allowance be recorded against a deferred tax asset if it is more likely than not that the tax benefit associated with the asset will not be realized in the future. As shown in the table above, valuation allowances were recorded against $32.3 and $33.8 of deferred tax assets as of September 30, 2021 and 2020, respectively. Most of these valuation allowances relate to certain credits and net operating losses (“NOLs”), as explained further below. Deferred tax assets related to foreign tax credits were $14.9 and $17.2 at September 30, 2021 and 2020, respectively. A full valuation allowance has been established against these foreign tax credits at September 30, 2021 as the Company does not expect to utilize them prior to their expiration. Tax benefits associated with state tax credits will also expire if not utilized and amounted to $1.4 at September 30, 2021 and 2020. A valuation allowance in the amount of $1.2 has been established at September 30, 2021 related to state credits the Company does not expect to utilize. Deferred tax assets related to certain federal NOLs subject to limitation under IRC §382 from current and prior ownership changes were $10.8 at September 30, 2021 and 2020. These NOLs will be subject to expiration gradually from fiscal year end 2022 through fiscal year end 2032. The Company determined that $10.5 of these deferred tax assets will expire unutilized due to the closing of statutes of limitation and has established a valuation allowance accordingly at September 30, 2021. Deferred tax assets related to foreign NOLs of certain controlled foreign corporations were $1.8 as of September 30, 2021, the majority of which have indefinite carryforward periods. Due to a history of losses in many of these entities, a valuation allowance has been established against $1.7 of these deferred tax assets at September 30, 2021. A valuation allowance has also been established against deferred tax assets related to other foreign items of $2.6 at September 30, 2021. Deferred tax assets related to state NOLs were $1.7 as of September 30, 2021, with carryforward periods ranging from 5 to 20 years. Any losses not utilized within a specific state’s carryforward period will expire. A valuation allowance was recorded against $1.3 of these deferred tax assets as of September 30, 2021 for state NOLs that the Company does not expect to realize within their respective carryforward periods. As of September 30, 2021, the Company maintains its assertions of indefinite reinvestment of the earnings of all material foreign subsidiaries. The Company had $24.1, $30.2 and $29.5 of gross unrecognized tax benefits related to uncertain tax positions at September 30, 2021, 2020 and 2019, respectively. Of these amounts, $0.2, $6.4 and $6.7 of gross unrecognized tax benefits are related to discontinued operations at September 30, 2021, 2020 and 2019, respectively. Included in the September 30, 2021, 2020 and 2019 balances were $19.9, $25.9 and $25.2, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate. A reconciliation of the unrecognized tax benefits is as follows:
| Year Ended September 30,
| 2021 |  | 2020 |  | 2019
Balance at beginning of year | $ | 30.2 |  |  | $ | 29.5 |  |  | $ | 13.9 |
Additions for tax positions of the current year | 0.3 |  |  | 0.3 |  |  | 13.8 |
Additions for tax positions of prior years | 6.1 |  |  | 4.5 |  |  | 4.4 |
Reductions for tax positions of prior years | (5.9) |  |  | (2.4) |  |  | (1.7) |
Settlements with tax authorities | 0.2 |  |  | 0.3 |  |  | (0.7) |
Expiration of statutes of limitation | (6.8) |  |  | (2.0) |  |  | (0.2) |
Balance at end of year | $ | 24.1 |  |  | $ | 30.2 |  |  | $ | 29.5 |
The Company continues to recognize accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. As of September 30, 2021, 2020 and 2019, the Company had $2.7, $2.8 and $2.1, respectively, accrued for the payment of interest that, if recognized, would impact the effective tax rate. As of September 30, 2021, 2020 and 2019, the Company had $1.6, $1.6 and $0.4, respectively, accrued for the payment of penalties. Scotts Miracle-Gro or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Subject to the following exceptions, the Company is no longer subject to examination by these tax authorities for fiscal years prior to 2018. There are currently no ongoing audits with respect to the U.S. federal jurisdiction. With respect to the foreign jurisdictions, a German audit covering fiscal years 2014 through 2017 is in process with no known material impact to the financial statements. The Company is currently under examination by certain U.S. state and local tax authorities covering various periods from fiscal years 2012 through 2020. In addition to the aforementioned audits, certain other tax deficiency notices and refund claims for previous years remain unresolved. The Company currently anticipates that few of its open and active audits will be resolved within the next twelve months. The Company is unable to make a reasonably reliable estimate as to when or if cash settlements with taxing authorities may occur. Although the outcomes of such examinations and the timing of any payments required upon the conclusion of such examinations are subject to significant uncertainty, the Company does not anticipate that the resolution of these tax matters or any events related thereto will result in a material change to its consolidated financial position, results of operations or cash flows.

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