Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 8. Income Taxes

The effective tax rate for the third quarter of 2023 was 27.4 percent on a pre-tax loss, compared to 6.6 percent on pre-tax income in the prior year. The primary factors that impacted the comparison of these rates were the third quarter 2023 charge related to the settlement agreement to resolve Combat Arms Earplugs litigation (see Note 14) and the tax efficient structure associated with the third quarter 2022 gain on split-off of the Food Safety business. The effective tax rate for the first nine months of 2023 was 25.8 percent, compared to 9.5 percent in the prior year. The primary factors that impacted the comparison of the nine-month rates were the third quarter 2023 charge related to the settlement agreement to resolve Combat Arms Earplugs litigation, the second quarter 2023 charge related to the proposed settlement agreement with public water systems in the United States regarding PFAS, and the tax impact associated with the second quarter 2022 charge related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 14), along with the tax efficient structure associated with the third quarter 2022 gain on split-off of the Food Safety business.

The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of September 30, 2023 and December 31, 2022 are $945 million and $965 million, respectively. It is reasonably possible that the amount of unrecognized tax benefits could significantly change within the next 12 months. At this time, the Company is not able to estimate the range by which these potential events could impact 3M’s unrecognized tax benefits in the next 12 months.

At September 30, 2023, 3M’s deferred tax assets, a component of other assets on the consolidated balance sheet, also included a balance of approximately $3.5 billion as a result of the pre-tax charge related to the proposed settlement agreement announced in the second quarter of 2023 with public water systems in the United States regarding PFAS and the third quarter 2023 charge related to the settlement agreement to resolve Combat Arms Earplugs litigation (both discussed in Note 14). As of September 30, 2023 and December 31, 2022, the Company had valuation allowances of $166 million and $115 million on its deferred tax assets, respectively.