Note 9. Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 9. Income Taxes

The components of the provision (benefit) for income taxes from continuing operations are as follows:

	Year Ended December 31,
	2021		2020		2019
	(in millions)
Current:
Federal:
Effect of CARES Act	$	2.1	$	(373.3)	$	—
Other	(3.0)		(142.1)		(6.8)
	(0.9)		(515.4)		(6.8)
State	(0.6)		(1.5)		6.9
Foreign	4.3		4.3		6.1
Total current	2.8		(512.6)		6.2
Deferred:
Federal:
Effect of CARES Act	0.4		192.9		—
Other	10.4		31.3		40.4
	10.8		224.2		40.4
State	2.4		4.1		13.7
Foreign	(0.1)		10.2		(1.5)
Total deferred	13.1		238.5		52.6
Provision (benefit)	$	15.9	$	(274.1)	$	58.8

The provision for income taxes from continuing operations results in effective tax rates that differ from the statutory rates. The following is a reconciliation between the statutory U.S. federal income tax rate and our effective income tax rate on income before income taxes:

	Year Ended December 31,
	2021		2020		2019
Statutory rate	21.0	%	21.0	%	21.0	%
Effect of CARES Act	4.5		34.4		—
State taxes	3.0		1.1		2.3
Foreign branch taxes	3.0		(0.2)		1.3
Executive compensation limitations	1.8		(0.3)		1.3
Foreign rate differential	1.4		(0.1)		0.4
Excise tax	1.3		—		—
Nondeductible compensation	1.2		(0.2)		0.6
Changes in state laws and apportionment	0.3		(1.4)		5.8
Equity compensation	(4.0)		—		(0.9)
Changes in valuation allowances and reserves	(4.3)		0.7		—
Impairment – noncontrolling interest in partially-owned subsidiaries	—		(3.3)		—
Interest expense limitations from partially-owned subsidiaries	—		0.2		1.1
Noncontrolling interest in partially-owned subsidiaries	—		0.1		0.2
Other, net	(0.4)		0.2		(0.6)
Effective rate	28.8	%	52.2	%	32.5	%

The effective tax rate is based upon the U.S. statutory rate of 21.0% for the years ended December 31, 2021, 2020, and 2019. For the year ended December 31, 2021, the difference between the U.S. statutory rate and effective tax rate is primarily due to an adjustment to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") carryback benefit previously recognized, state taxes, and foreign taxes, partially offset by excess tax benefits associated with equity based compensation. For the year ended December 31, 2020, the difference between the U.S. statutory rate and effective tax rate is primarily due the impact of the CARES Act partially offset by the portion of the non-cash small cube covered hopper railcar impairment charge that is not tax-effected because it is related to the noncontrolling interest. For the year ended December 31, 2019, the difference between the U.S. statutory rate and effective tax rate is primarily due to state income tax expense, foreign branch taxes, and changes in state tax laws and apportionment. See Note 5 for a further explanation of activities with respect to our partially-owned leasing subsidiaries.

Due to the enactment of the CARES Act, Trinity filed a carryback claim for the 2018-2020 tax losses to the 2013-2015 tax years, allowing the recovery of taxes previously paid. The income taxes associated with the carryback claims were paid at a federal rate of 35.0%, rather than the current rate of 21.0% in effect beginning with the 2018 tax year. The overall net impact of the CARES Act resulted in a tax expense of $2.5 million and a tax benefit of $180.4 million for the years ended December 31, 2021 and 2020, respectively.

Income (loss) from continuing operations before income taxes for the years ended December 31, 2021, 2020, and 2019 was $44.6 million, $(517.2) million, and $181.6 million, respectively, for U.S. operations, and $10.6 million, $(7.4) million, and $(0.4) million, respectively, for foreign operations, principally Mexico and Canada.

Deferred income taxes represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax liabilities and assets are as follows:

	December 31,
	2021		2020
	(in millions)
Deferred tax liabilities:
Depreciation, depletion, and amortization	$	1,032.2	$	996.8
Partially-owned subsidiaries basis difference	139.2		139.9
Right-of-use assets	18.7		17.5
Accrued liabilities and other	1.9		—
Total deferred tax liabilities	1,192.0		1,154.2
Deferred tax assets:
Workers compensation, pensions, and other benefits	28.7		27.1
Warranties and reserves	7.3		3.9
Equity items	5.9		9.5
Tax loss carryforwards and credits	38.4		62.8
Inventory	6.0		5.4
Accrued liabilities and other	—		5.3
Lease liabilities	24.4		22.9
Total deferred tax assets	110.7		136.9
Net deferred tax liabilities before valuation allowances	1,081.3		1,017.3
Valuation allowances	24.4		25.2
Net deferred tax liabilities before reserve for uncertain tax positions	1,105.7		1,042.5
Deferred tax assets included in reserve for uncertain tax positions	(1.1)		(1.0)
Adjusted net deferred tax liabilities	$	1,104.6	$	1,041.5

At December 31, 2021, we had $3.9 million of federal consolidated net operating loss carryforwards and $20.6 million of tax-effected state loss carryforwards remaining. All of the federal net operating loss carryforwards were acquired in a stock acquisition in 2010 and are subject to limitations on the amount that can be utilized in any one year tax year and are due to expire in 2029. We have established valuation allowances for federal, state, and foreign tax operating losses and credits that we have estimated may not be realizable.

Taxing authority examinations

Our 2016 and 2017 tax years are effectively settled. The statutes of limitations for auditing the 2013-2015 and 2018-2020 tax years will remain open due to tax loss carryback claims we have filed. We have state tax returns that are under audit in the normal course of business, and our Mexican subsidiaries' tax return statutes of limitations remain open for auditing 2014 forward. We believe we are appropriately reserved for any potential matters.

Unrecognized tax benefits

The change in unrecognized tax benefits was as follows:

	Year Ended December 31,
	2021		2020		2019
	(in millions)
Beginning balance	$	2.3	$	2.3	$	8.1
Additions for tax positions of prior years	—		—		—
Reductions for tax positions of prior years	—		—		—
Settlements	—		—		(5.8)
Expiration of statute of limitations	—		—		—
Ending balance	$	2.3	$	2.3	$	2.3

Settlements during the year ended December 31, 2019 were due to the resolution of state audits.

The total amount of unrecognized tax benefits including interest and penalties at December 31, 2021 and 2020, that would affect our effective tax rate if recognized, was $4.3 million and $4.1 million, respectively.

The Company accounts for interest expense and penalties related to income tax issues as income tax expense. Accordingly, interest expense and penalties associated with an uncertain tax position are included in the income tax provision. The total amount of accrued interest and penalties from continuing operations as of December 31, 2021 and 2020 was $3.0 million and $2.9 million, respectively. Income tax expense for the years ended December 31, 2021, 2020, and 2019 included an increase of $0.1 million, an increase of $0.2 million, and a decrease of $1.0 million, respectively, with regard to interest expense and penalties related to uncertain tax positions.