Income Taxes

12 Months Ended

Oct. 30, 2022

Income Taxes

Income Taxes

Note 14. Income Taxes

The provision for income taxes by taxing jurisdiction and by significant component consisted of the following (in millions of dollars):

	2022		2021		2020
Current:
U.S.:
Federal	$	200.9	$	231.4	$	273.2
State		10.8		15.2		9.0
Foreign		29.3		37.2		27.5
Total current		241.0		283.8		309.7
Deferred:
U.S.:
Federal		(46.5)		(69.7)		(179.1)
State		3.5		2.2		(4.1)
Foreign		11.0		(15.8)		7.6
Total deferred		(32.0)		(83.3)		(175.6)
Provision for income taxes	$	209.0	$	200.5	$	134.1

The taxable income of the Company is included in the consolidated U.S. income tax return of Deere & Company. Under a tax sharing agreement with Deere & Company, the Company’s provision for income taxes is generally recorded as if Capital Corporation and each of its subsidiaries filed separate income tax returns, with a modification for realizability of certain tax benefits. The difference between the provision for income taxes recorded by the Company and the provision for income taxes calculated on an unmodified, separate return basis was not material in 2022, 2021, or 2020.

The amounts due from (payable to) Deere & Company under the tax sharing agreement at October 30, 2022 and October 31, 2021 were $6.3 million and $(9.6) million, respectively. The tax sharing receivable is included in other receivables and the payable is included in accounts payable and accrued expenses on the consolidated balance sheets.

A comparison of the statutory and effective income tax provision and reasons for related differences follows (in millions of dollars):

	2022		2021		2020
U.S. federal income tax provision at a statutory rate (21 percent)	$	190.8	$	190.8	$	116.9
Increase (decrease) resulting from:
Tax rates on foreign earnings		6.0		5.5		5.8
State and local income taxes, net of federal income tax benefit		11.3		13.7		3.8
Other - net		.9		(9.5)		7.6
Provision for income taxes	$	209.0	$	200.5	$	134.1

At October 30, 2022, accumulated earnings of $66.5 million in certain subsidiaries outside the U.S. are expected to remain indefinitely reinvested outside of the U.S. As such, a provision for foreign withholding taxes has not been made. Determination of the amount of foreign withholding tax liability on these unremitted earnings is not practicable.

Deferred income taxes arise because there are certain items that are treated differently for financial accounting than for income tax reporting purposes. An analysis of deferred income tax assets and liabilities at October 30, 2022 and October 31, 2021 was as follows (in millions of dollars):

	2022				2021
	Deferred		Deferred		Deferred		Deferred
	Tax		Tax		Tax		Tax
	Assets		Liabilities		Assets		Liabilities
Lease transactions			$	262.5			$	310.4
Accrual for retirement and other benefits	$	5.3			$	4.8
Accrual for other employee benefits		14.3				15.9
Allowance for credit losses		32.6				31.9
Net unrealized gain on derivatives/investments				26.5				3.9
Tax loss and tax credit carryforwards		11.6				18.7
Federal taxes on deferred state tax deductions		7.8				7.4
Miscellaneous accruals and other		13.7		4.1		17.5		5.3
Less valuation allowances		(8.3)				(9.0)
Deferred income tax assets and liabilities	$	77.0	$	293.1	$	87.2	$	319.6

At October 30, 2022, tax loss and tax credit carryforwards of $11.6 million were available, with $10.9 million expiring from 2029 through 2038 and $.7 million with an indefinite carryforward period.

A reconciliation of the total amounts of unrecognized tax benefits at October 30, 2022, October 31, 2021, and November 1, 2020 was as follows (in millions of dollars):

	2022		2021		2020
Beginning of year balance	$	34.9	$	33.3	$	32.5
Increases to tax positions taken during the current year		9.3		11.2		7.4
Increases to tax positions taken during prior years		1.2		1.4		3.1
Decreases to tax positions taken during prior years		(6.1)		(5.8)		(4.9)
Decreases due to lapse of statute of limitations		(2.7)		(3.7)		(4.8)
Settlements		(.1)		(1.5)
End of year balance	$	36.5	$	34.9	$	33.3

The amount of unrecognized tax benefits at October 30, 2022 and October 31, 2021 that would impact the effective tax rate if the tax benefits were recognized was $25.2 million and $24.0 million, respectively. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The Company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next twelve months would not be significant.

The Company files its tax returns according to the tax laws of the jurisdictions in which it operates, which includes the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company is included in the consolidated U.S. income tax return and various state returns of Deere & Company. The U.S. Internal Revenue Service has completed the examination of Deere & Company’s federal income tax returns for periods prior to 2015. The federal income tax returns for years 2015 to 2020 are currently under examination. Various state and foreign income tax returns also remain subject to examination by taxing authorities.

The Company’s policy is to recognize interest related to income taxes in interest expense and other income, and recognize penalties in administrative and operating expenses. The amount of interest and penalties recognized was not significant for any of the periods presented. At October 30, 2022 and October 31, 2021, the liability for accrued interest and penalties totaled $12.8 million and $12.3 million, respectively.