Income Taxes

9 Months Ended

Sep. 30, 2012

Disclosure Text Block

Income Taxes

4. Income Taxes

TDS' overall effective tax rate on Income before income taxes for the three and nine months ended September 30, 2012 was 35.9% and 34.3%, respectively, and for the three and nine months ended September 30, 2011 was 37.8% and 27.4%, respectively.

The effective tax rate for the three months ended September 30, 2012 was lower than the rate for the three months ended September 30, 2011 primarily as a result of a $2.3 million tax benefit related to a correction of state deferred taxes in 2012. The correction related to a prior period and was recorded as an out-of-period adjustment in the quarter ended September 30, 2012.This benefit, along with other discrete items, decreased income tax expense for the three months ended September 30, 2012 by$1.5 million; absent these benefits, the effective tax rate for the three months ended September 30, 2012would have been higher by 2.4percentage points.

The effective tax rate for the nine months ended September 30, 2012 was higher than the rate for the nine months ended September 30, 2011 primarily as a result ofstate law changes and the expiration of statutes of limitations for certain tax years in 2011.This benefit, along with other discrete items, decreased income tax expense for the nine months ended September 30, 2011 by $21.5 million; absent these benefits, the effective tax rate for the nine months ended September 30, 2011 would have been higher by 10.3 percentage points.

TDS incurred a federal net operating loss in 2011 largely attributable to 100% bonus depreciation applicable to qualified capital expenditures. TDS carried back this federal net operating loss to prior tax years, and received a $71.4 million federal income tax refund in 2012 for carrybacks to 2009 and 2010 tax years. TDS' future federal income tax liabilities associated with the benefits realized from bonus depreciation are accrued as a component of Net deferred income tax liability (noncurrent) in the Consolidated Balance Sheet. The bonus depreciation rate for federal income tax purposes is 50% for 2012 and will expire at the end of the year. TDS expects federal income tax payments to substantially increase beginning in 2013 and remain at a higher level for several years as the amount of TDS' federal tax depreciation deduction substantially decreases.