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INCOME TAXES | 12 Months Ended
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Sep. 30, 2023
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,
| 2023 |  | 2022 |  | 2021
Current: |  |  |  |  |
Federal | $ | 3.7 |  |  | $ | 22.8 |  |  | $ | 113.7 |
State | 0.6 |  |  | 9.3 |  |  | 31.6 |
Foreign | 1.6 |  |  | 8.7 |  |  | 2.7 |
Total current | 5.9 |  |  | 40.8 |  |  | 148.0 |
Deferred: |  |  |  |  |
Federal | (62.1) |  |  | (125.5) |  |  | 9.1 |
State | (5.2) |  |  | (23.3) |  |  | 1.5 |
Foreign | (11.8) |  |  | (12.6) |  |  | 1.2 |
Total deferred | (79.1) |  |  | (161.4) |  |  | 11.8 |
Income tax expense (benefit) from continuing operations | $ | (73.2) |  |  | $ | (120.6) |  |  | $ | 159.8 |
The domestic and foreign components of income (loss) from continuing operations before income taxes were as follows:
| Year Ended September 30,
| 2023 |  | 2022 |  | 2021
Domestic | $ | (376.2) |  |  | $ | (427.3) |  |  | $ | 670.2 |
Foreign | (77.1) |  |  | (130.8) |  |  | 6.9 |
Income (loss) from continuing operations before income taxes | $ | (453.3) |  |  | $ | (558.1) |  |  | $ | 677.1 |
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,
| 2023 |  | 2022 |  | 2021
Statutory income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Effect of foreign operations | 0.2 |  |  | (1.6) |  |  | (0.2) |
State taxes, net of federal benefit | 3.2 |  |  | 2.6 |  |  | 3.9 |
Effect of other permanent differences | (0.8) |  |  | 2.8 |  |  | (1.1) |
Research and Experimentation and other federal tax credits | 0.2 |  |  | 0.2 |  |  | (0.2) |
Effect of tax contingencies | 0.1 |  |  | (1.8) |  |  | — |
Change in valuation allowances | (8.7) |  |  | (0.9) |  |  | 0.1 |
Other | 1.0 |  |  | (0.7) |  |  | 0.1 |
Effective income tax rate | 16.2 | % |  | 21.6 | % |  | 23.6 | %
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,
| 2023 |  | 2022
DEFERRED TAX ASSETS |  |  |
Intangible assets | $ | 79.2 |  |  | $ | 60.8 |
Lease liabilities | 70.0 |  |  | 70.7 |
Net operating loss carryovers | 67.3 |  |  | 21.7 |
Accrued liabilities | 48.7 |  |  | 80.8 |
Interest limitation carryforward | 35.9 |  |  | — |
Convertible debt investments | 33.4 |  |  | 25.3 |
Inventories | 26.1 |  |  | 43.2 |
Foreign tax credit carryovers | 16.3 |  |  | 15.0 |
Outside basis difference in equity investments | 10.4 |  |  | — |
Accounts receivable | 8.9 |  |  | 8.7 |
Other | 14.9 |  |  | 12.5 |
Gross deferred tax assets | 411.1 |  |  | 338.7 |
Valuation allowance | (87.7) |  |  | (40.7) |
Total deferred tax assets | 323.4 |  |  | 298.0 |
DEFERRED TAX LIABILITIES |  |  |
Property, plant and equipment | (62.7) |  |  | (65.8) |
Lease right-of-use assets | (62.1) |  |  | (68.6) |
Derivative contracts | (5.8) |  |  | (10.5) |
Outside basis difference in equity investments | — |  |  | (14.8) |
Other | (4.1) |  |  | (3.3) |
Total deferred tax liabilities | (134.7) |  |  | (163.0) |
Net deferred tax asset | $ | 188.7 |  |  | $ | 135.0 |
At September 30, 2023 and 2022, after netting by taxing jurisdiction, net deferred tax assets of $189.8 and $143.5, respectively, were recorded in the “Other assets” line in the Consolidated Balance Sheets, and net deferred tax liabilities of $1.1 and $8.5, respectively, were recorded in the “Other liabilities” line in the Consolidated Balance Sheets. 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 $87.7 and $40.7 of deferred tax assets as of September 30, 2023 and 2022, respectively. Most of these valuation allowances relate to losses on convertible debt investments, credits, and net operating losses (“NOLs”), as explained further below. Deferred tax assets related to unrealized losses on convertible debt investments were $33.4 and $25.3 at September 30, 2023 and 2022, respectively. A full valuation allowance has been established against these losses at September 30, 2023 as the Company does not expect to utilize them prior to their expiration. Deferred tax assets related to foreign tax credits were $16.3 and $15.0 at September 30, 2023 and 2022, respectively. A full valuation allowance has been established against these foreign tax credits at September 30, 2023 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, 2023 and 2022. A valuation allowance in the amount of $1.3 has been established at September 30, 2023 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 $10.5 and $10.7 at September 30, 2023 and 2022, respectively. These NOLs will be subject to expiration gradually from fiscal year end 2023 through fiscal year end 2032. The Company determined that $10.2 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, 2023. The Company had deferred tax assets related to federal NOLs not subject to limitation of $33.3 at September 30, 2023, which can be utilized to reduce future years' tax liabilities. Deferred tax assets related to foreign NOLs of certain controlled foreign corporations were $8.3 and $3.7 as of September 30, 2023 and 2022, respectively. Due to a history of losses, a valuation allowance of $6.4 has been established against these deferred tax assets as of September 30, 2023. A valuation allowance has also been established against deferred tax assets related to other foreign items of $11.0 at September 30, 2023. Deferred tax assets related to state NOLs were $15.2 and $7.3 as of September 30, 2023 and 2022, 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 $6.9 of these deferred tax assets as of September 30, 2023 for state NOLs that the Company does not expect to realize within their respective carryforward periods. A valuation allowance has also been established against deferred tax assets related to other state items of $2.2 at September 30, 2023. As of September 30, 2023, the Company maintains its assertions of indefinite reinvestment of the earnings of all material foreign subsidiaries. The Company had $34.6, $35.8 and $24.1 of gross unrecognized tax benefits related to uncertain tax positions at September 30, 2023, 2022 and 2021, respectively. Included in the September 30, 2023, 2022 and 2021 balances were $31.1, $31.5 and $19.9, 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,
| 2023 |  | 2022 |  | 2021
Balance at beginning of year | $ | 35.8 |  |  | $ | 24.1 |  |  | $ | 30.2 |
Additions for tax positions of the current year | 0.2 |  |  | 11.3 |  |  | 0.3 |
Additions for tax positions of prior years | 3.8 |  |  | 2.2 |  |  | 6.1 |
Reductions for tax positions of prior years | (0.2) |  |  | (2.5) |  |  | (5.9) |
Settlements with tax authorities | (0.1) |  |  | 1.3 |  |  | 0.2 |
Expiration of statutes of limitation | (4.9) |  |  | (0.6) |  |  | (6.8) |
Balance at end of year | $ | 34.6 |  |  | $ | 35.8 |  |  | $ | 24.1 |
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, 2023, 2022 and 2021, the Company had $3.9, $3.2 and $2.7, respectively, accrued for the payment of interest that, if recognized, would impact the effective tax rate. The Company had $1.3, $1.6 and $1.6 accrued for the payment of penalties as of September 30, 2023, 2022 and 2021, respectively. 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 2020. 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 2018 through 2020 and a Canadian audit covering fiscal years 2020 through 2021 are in process. The Company is currently under examination by certain U.S. state and local tax authorities covering various periods from fiscal years 2018 through 2021. 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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