Income Taxes

9 Months Ended

Sep. 30, 2022

Income Taxes [Abstract]

Income Taxes

Note 16.  Income Taxes

The following table presents the components of our consolidated provision for income taxes for the periods indicated (dollars in millions):

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Deferred tax expense attributable to     OTA Holdings, Inc. (“OTA”)	$	(7	)	$	(7	)	$	(21	)	$	(20	)
Revised Texas Franchise Tax (“Texas Margin Tax”)		(10	)		(10	)		(29	)		(37	)
Other		(1	)		1			(4	)		–
Provision for income taxes	$	(18	)	$	(16	)	$	(54	)	$	(57	)

Our federal, state and foreign income tax benefit (provision) is summarized below:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Current portion of income tax benefit (provision):
Federal	$	(1	)	$	1		$	(1	)	$	2
State		(9	)		(8	)		(26	)		(25	)
Foreign		–			–			(3	)		(1	)
Total current portion		(10	)		(7	)		(30	)		(24	)
Deferred portion of income tax benefit (provision):
Federal		(6	)		(7	)		(19	)		(19	)
State		(2	)		(2	)		(5	)		(14	)
Total deferred portion		(8	)		(9	)		(24	)		(33	)
Total provision for income taxes	$	(18	)	$	(16	)	$	(54	)	$	(57	)

A reconciliation of the provision for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Pre-Tax Net Book Income (“NBI”)	$	1,410		$	1,198		$	4,217		$	3,748
Texas Margin Tax (1)		(10	)		(10	)		(29	)		(37	)
State income tax provision, net of federal benefit		–			–			(1	)		(1	)
Federal income tax provision computed by applying      the federal statutory rate to NBI of corporate entities		(4	)		(3	)		(11	)		(10	)
Valuation allowance (2)		(3	)		(3	)		(10	)		(9	)
Other		(1	)		–			(3	)		–
Provision for income taxes	$	(18	)	$	(16	)	$	(54	)	$	(57	)
Effective income tax rate		(1.3	)%		(1.3	)%		(1.3	)%		(1.5	)%

(1)	Although the Texas Margin Tax is not considered a state income tax, it has the characteristics of an income tax since it is determined by applying a tax rate to a base that considers our Texas-sourced revenues and expenses.
(2)	Management believes that it is more likely than not that the net deferred tax assets attributable to OTA will not be fully realizable.  Accordingly, we provided for a valuation allowance against OTA’s net deferred tax assets.

The following table presents the significant components of deferred tax assets and deferred tax liabilities at the dates indicated:

	September 30,		December 31,
	2022		2021
Deferred tax liabilities:
Attributable to investment in OTA	$	405	$	384
Attributable to property, plant and equipment		122		118
Attributable to investments in other entities		6		5
Other		36		14
Total deferred tax liabilities		569		521
Deferred tax assets:
Net operating loss carryovers (1)		10		14
Temporary differences related to Texas Margin Tax		4		3
Total deferred tax assets		14		17
Valuation allowance		10		14
Total deferred tax assets, net of valuation allowance		4		3
Total net deferred tax liabilities	$	565	$	518

(1) The loss amount presented as of September 30, 2022 has an indefinite carryover period.  All losses are subject to limitations on their utilization.