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INCOME TAXES | 12 Months Ended
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Sep. 30, 2022
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,
| 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |
Federal | $ | 22.8 |  |  | $ | 113.7 |  |  | $ | 104.3 |
State | 9.3 |  |  | 31.6 |  |  | 25.3 |
Foreign | 8.7 |  |  | 2.7 |  |  | 0.3 |
Total Current | 40.8 |  |  | 148.0 |  |  | 129.9 |
Deferred: |  |  |  |  |
Federal | (125.5) |  |  | 9.1 |  |  | (1.6) |
State | (23.3) |  |  | 1.5 |  |  | (2.0) |
Foreign | (12.6) |  |  | 1.2 |  |  | (2.6) |
Total Deferred | (161.4) |  |  | 11.8 |  |  | (6.2) |
Income tax expense (benefit) from continuing operations | $ | (120.6) |  |  | $ | 159.8 |  |  | $ | 123.7 |
The domestic and foreign components of income (loss) from continuing operations before income taxes were as follows:
| Year Ended September 30,
| 2022 |  | 2021 |  | 2020
Domestic | $ | (427.3) |  |  | $ | 670.2 |  |  | $ | 483.7 |
Foreign | (130.8) |  |  | 6.9 |  |  | 26.9 |
Income (loss) from continuing operations before income taxes | $ | (558.1) |  |  | $ | 677.1 |  |  | $ | 510.6 |
A reconciliation of the federal corporate income tax rate and the effective tax rate on income (loss) from continuing operations before income taxes is summarized below:
| Year Ended September 30,
| 2022 |  | 2021 |  | 2020
Statutory income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Effect of foreign operations | (2.5) |  |  | (0.1) |  |  | (0.7) |
State taxes, net of federal benefit | 2.6 |  |  | 3.9 |  |  | 3.5 |
Effect of other permanent differences | 2.8 |  |  | (1.1) |  |  | — |
Research and Experimentation and other federal tax credits | 0.2 |  |  | (0.2) |  |  | (0.3) |
Effect of tax contingencies | (1.8) |  |  | — |  |  | 0.1 |
Other | (0.7) |  |  | 0.1 |  |  | 0.6 |
Effective income tax rate | 21.6 | % |  | 23.6 | % |  | 24.2 | %
During fiscal 2022, the Company recognized non-cash, pre-tax goodwill and intangible asset impairment charges of $668.3 in the “Impairment, restructuring and other” line in the Consolidated Statements of Operations. The tax impact of the impairment charges was a benefit of $148.3, which is net of the impact of non-deductible goodwill of $18.8, for fiscal 2022 and was recorded in the “Income tax expense (benefit) from continuing operations” line in the Consolidated Statements of Operations. The tax impact of non-deductible goodwill was considered a discrete item because the Company has no remaining non-deductible goodwill. This discrete item, which is included in the “Effect of foreign operations” line in the table above, decreased the fiscal 2022 effective tax rate by approximately 340 bps because the Company incurred a net loss during this period. Additionally, excess tax benefits related to share-based compensation, which are included in the “Effect of other permanent differences” line in the table above, increased the fiscal 2022 effective tax rate by approximately 260 bps. 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,
| 2022 |  | 2021
DEFERRED TAX ASSETS |  |  |
Accrued liabilities | $ | 80.8 |  |  | $ | 65.6 |
Lease liabilities | 70.7 |  |  | 71.0 |
Intangible assets | 60.8 |  |  | — |
Inventories | 43.2 |  |  | 16.8 |
Convertible debt investments | 25.3 |  |  | — |
Net operating loss carryovers | 21.7 |  |  | 14.2 |
Foreign tax credit carryovers | 15.0 |  |  | 14.9 |
Accounts receivable | 8.7 |  |  | 8.5 |
Other | 12.5 |  |  | 5.0 |
Gross deferred tax assets | 338.7 |  |  | 196.0 |
Valuation allowance | (40.7) |  |  | (32.3) |
Total deferred tax assets | 298.0 |  |  | 163.7 |
DEFERRED TAX LIABILITIES |  |  |
Intangible assets | — |  |  | (73.3) |
Lease right-of-use assets | (68.6) |  |  | (69.6) |
Property, plant and equipment | (65.8) |  |  | (55.8) |
Outside basis difference in equity investments | (14.8) |  |  | (7.2) |
Derivative contracts | (10.5) |  |  | — |
Other | (3.3) |  |  | (5.6) |
Total deferred tax liabilities | (163.0) |  |  | (211.5) |
Net deferred tax asset (liability) | $ | 135.0 |  |  | $ | (47.8) |
At September 30, 2022, after netting by taxing jurisdiction, net deferred tax assets of $143.5 were recorded in the “Other assets” line in the Consolidated Balance Sheets, and net deferred tax liabilities of $8.5 were recorded in the “Other liabilities” line in the Consolidated Balance Sheets. At September 30, 2021, net deferred tax liabilities were $47.8 and were recorded in the “Other liabilities” line in the Consolidated Balance Sheets. The change in the net deferred tax balance was primarily driven by deferred tax assets recorded during fiscal 2022 associated with goodwill and intangible asset impairment charges and unrealized losses on convertible debt investments. 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 $40.7 and $32.3 of deferred tax assets as of September 30, 2022 and 2021, 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 $15.0 and $14.9 at September 30, 2022 and 2021, respectively. A full valuation allowance has been established against these foreign tax credits at September 30, 2022 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, 2022 and 2021. A valuation allowance in the amount of $1.2 has been established at September 30, 2022 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 $10.7 and $10.8 at September 30, 2022 and 2021, respectively. These NOLs will be subject to expiration gradually from fiscal year end 2023 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, 2022. Deferred tax assets related to foreign NOLs of certain controlled foreign corporations were $3.7 and $1.8 as of September 30, 2022 and 2021, respectively. Due to a history of losses in some of these entities, a valuation allowance has been established against $2.9 of these deferred tax assets at September 30, 2022. A valuation allowance has also been established against deferred tax assets related to other foreign items of $6.3 at September 30, 2022. Deferred tax assets related to state NOLs were $7.3 and $1.7 as of September 30, 2022 and 2021, respectively, 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 $4.8 of these deferred tax assets as of September 30, 2022 for state NOLs that the Company does not expect to realize within their respective carryforward periods. As of September 30, 2022, the Company maintains its assertions of indefinite reinvestment of the earnings of all material foreign subsidiaries. The Company had $35.8, $24.1 and $30.2 of gross unrecognized tax benefits related to uncertain tax positions at September 30, 2022, 2021 and 2020, respectively. Of these amounts, $0.2, $0.2 and $6.4 of gross unrecognized tax benefits are related to discontinued operations at September 30, 2022, 2021 and 2020, respectively. Included in the September 30, 2022, 2021 and 2020 balances were $31.5, $19.9 and $25.9, 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,
| 2022 |  | 2021 |  | 2020
Balance at beginning of year | $ | 24.1 |  |  | $ | 30.2 |  |  | $ | 29.5 |
Additions for tax positions of the current year | 11.3 |  |  | 0.3 |  |  | 0.3 |
Additions for tax positions of prior years | 2.2 |  |  | 6.1 |  |  | 4.5 |
Reductions for tax positions of prior years | (2.5) |  |  | (5.9) |  |  | (2.4) |
Settlements with tax authorities | 1.3 |  |  | 0.2 |  |  | 0.3 |
Expiration of statutes of limitation | (0.6) |  |  | (6.8) |  |  | (2.0) |
Balance at end of year | $ | 35.8 |  |  | $ | 24.1 |  |  | $ | 30.2 |
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, 2022, 2021 and 2020, the Company had $3.2, $2.7 and $2.8, respectively, accrued for the payment of interest that, if recognized, would impact the effective tax rate. The Company had $1.6 accrued for the payment of penalties as of September 30, 2022, 2021 and 2020. 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 2019. 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. The Company is currently under examination by certain U.S. state and local tax authorities covering various periods from fiscal years 2017 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. The Inflation Reduction Act (the “Act”) was signed into law on August 16, 2022. The Act introduces a new 15% corporate minimum tax for certain large corporations that becomes effective for the Company’s fiscal year 2024 and it imposes a 1% excise tax on the value of share repurchases, net of new share issuances, after December 31, 2022. These provisions, as well as the other corporate tax changes included in the Act, are not expected to have a material impact on the Company’s financial statements.

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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 https://asc.fasb.org/extlink&oid=121826272&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 https://asc.fasb.org/extlink&oid=122134291&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 https://asc.fasb.org/extlink&oid=121826272&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 https://asc.fasb.org/extlink&oid=122134291&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 https://asc.fasb.org/extlink&oid=121826272&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 https://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 https://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 https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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