Income Taxes

12 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Pretax earnings from continuing operations consist of the following:

	2021		2022	2023
United States	$	675	1,345	1,352
Non-U.S.	1,087		1,087	1,374
Total pretax earnings	$	1,762	2,432	2,726

The principal components of income tax expense follow:

	2021		2022	2023
Current:
U.S. federal	$	17	315	465
State and local	14		36	47
Non-U.S.	258		306	369
Deferred:
U.S. federal	84		(92)	(198)
State and local	(2)		(13)	(23)
Non-U.S.	(25)		(3)	(61)
Income tax expense	$	346	549	599

Reconciliations of the U.S. federal statutory income tax rate to the Company's effective tax rate follow.

	2021		2022		2023
U.S. federal statutory rate	21.0	%	21.0	%	21.0	%
State and local taxes, net of U.S. federal tax benefit	0.5		0.7		0.7
Non-U.S. rate differential	2.6		1.2		0.8
Non-U.S. tax holidays	(1.2)		(1.1)		(0.9)
Research and development credits	(0.9)		(0.5)		(0.5)
Foreign derived intangible income	(1.6)		(2.0)		(2.8)
Subsidiary restructuring	(0.8)		0.8		—
Russia business exit	—		2.0		0.2
Other	—		0.5		3.5
Effective income tax rate	19.6	%	22.6	%	22.0	%

The 2023 increase in other was driven by a 1 percentage point impact from U.S. taxation of Non-U.S. operations and a 2 percentage point impact due to an increase in unrecognized tax benefits.

The Company has elected to recognize the tax on global intangible low-taxed income earned by certain of its non-U.S. subsidiaries as a period expense when it is incurred.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. Tax provisions of the CARES Act included the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company deferred $73 of certain payroll taxes through the end of calendar year 2020, of which approximately $37 was paid in December 2021 and the remainder paid in December 2022.

Non-U.S. tax holidays reduce tax rates in certain jurisdictions. Approximately 80 percent of the tax holidays expire over the next four years, with the remainder expiring by 2030.

Following are changes in unrecognized tax benefits before considering recoverability of any cross-jurisdictional tax credits (U.S. federal, state and non-U.S.) and temporary differences. The amount of unrecognized tax benefits is not expected to change significantly in the next 12 months.

	2022		2023
Unrecognized tax benefits, beginning	$	209	167
Additions for current year tax positions	24		78
Additions for prior year tax positions	9		13
Reductions for prior year tax positions	(65)		(10)
Acquisitions and divestitures	1		—
Reductions for settlements with tax authorities	—		(5)
Reductions for expiration of statutes of limitations	(11)		(8)
Unrecognized tax benefits, ending	$	167	235

If none of the unrecognized tax benefits shown is ultimately paid, the tax provision and the calculation of the effective tax rate would be favorably impacted by $196, which is net of cross-jurisdictional tax credits and temporary differences. The Company accrues interest and penalties related to income taxes in income tax expense. Total expense (income) recognized was $1, $(7) and $(6) in 2023, 2022 and 2021, respectively. As of September 30, 2023 and 2022, total accrued interest and penalties were $22 and $21, respectively.

The U.S. is the major jurisdiction for which the Company files income tax returns. Examinations for U.S. federal are complete through 2017, except for 2014. The status of state and non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates.

The principal items that gave rise to deferred income tax assets and liabilities follow:

	2022		2023
Deferred tax assets:
Net operating losses, capital losses and tax credits	$	209	253
Accrued liabilities	213		163
Postretirement and postemployment benefits	21		17
Employee compensation and benefits	122		103
Other	125		158
Total	$	690	694
Valuation allowances	$	(171)	(164)
Deferred tax liabilities:
Intangibles	$	(1,622)	(1,387)
Pensions	(126)		(151)
Property, plant and equipment	(207)		(148)
Undistributed non-U.S. earnings	(37)		(32)
Deferred gains	(10)		(596)
Other	(146)		(75)
Total	$	(2,148)	(2,389)
Net deferred income tax liability	$	(1,629)	(1,859)

Total income taxes paid were approximately $3,310, $720 and $680 in 2023, 2022 and 2021, respectively. Taxes paid in 2023 included approximately $2.3 billion related to the gains on the Copeland transaction and InSinkErator divestiture and subsidiary restructurings related to the Copeland transaction. Approximately two-thirds of the $253 of net operating losses can be carried forward indefinitely, while most of the remainder expire over the next 10 years.