Income Taxes

6 Months Ended

Apr. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Our effective tax rate was 23.4% and 23.5% for the second quarter of fiscal 2022 and 2021, respectively and 21.6% and 23.5% for the first six months of fiscal 2022 and 2021, respectively. The effective tax rates for the second quarter and first six months of fiscal 2022 and 2021 were higher than the federal statutory tax rate primarily due to state taxes, partially offset by various tax benefits. The effective tax rate for the first six months of fiscal 2022 also includes a $36 million benefit from the remeasurement of deferred income taxes, primarily due to legislation decreasing state tax rates enacted in the first quarter.

Unrecognized tax benefits were $157 million and $152 million at April 2, 2022 and October 2, 2021, respectively. We do not expect material changes to our unrecognized tax benefits during the next twelve months.

In December 2021, we received an assessment from the Mexican tax authorities related to the 2015 sale of our direct and indirect equity interests in subsidiaries which held our Mexico operations. At that time, the assessment totaled approximately $380 million (7.8 billion Mexican pesos), which includes tax, inflation adjustment, interest and penalties. We believe the assertions made in the assessment letter have no merit and will defend our positions through the Mexican administrative appeal process and litigation, if necessary. Based on our analysis of this assessment in accordance with FASB guidance related to unrecognized tax benefits, we have not recorded a liability related to the issue.