Income Taxes

12 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Selected income tax data (in millions):

	2022		2021		2020
Components of Income before income taxes
United States	$	371.3	$	885.1	$	556.2
Non-United States	702.3		641.1		579.9
Total	$	1,073.6	$	1,526.2	$	1,136.1

Components of Income tax provision
Current
United States	$	71.6	$	149.6	$	68.1
Non-United States	102.9		190.7		96.6
State and local	13.6		25.7		13.9
Total current	188.1		366.0		178.6
Deferred
United States	(10.7)		(154.7)		(32.8)
Non-United States	(13.0)		(19.0)		(24.7)
State and local	(9.9)		(10.4)		(8.2)
Total deferred	(33.6)		(184.1)		(65.7)
Income tax provision	$	154.5	$	181.9	$	112.9
Total income taxes paid	$	340.2	$	329.3	$	187.9

Income tax liabilities of $233.7 million and $264.8 million related to the U.S. transition tax under the Tax Act that are payable greater than 12 months from September 30, 2022 and 2021, respectively, are recorded in Other liabilities in the Consolidated Balance Sheet. Furthermore, taxes paid as a result of the transition tax was $31.2 million in each of the years ended September 30, 2022 and 2021, respectively, and $28.7 million during the year ended September 30, 2020 as included in total income taxes paid.

Effective Tax Rate Reconciliation

The reconciliation between the U.S. federal statutory rate and our effective tax rate was:

	2022		2021		2020
Statutory tax rate	21.0	%	21.0	%	21.0	%
State and local income taxes	0.5		1.4		0.8
Non-United States taxes	(5.4)		(3.8)		(5.0)
Repatriation of foreign earnings	1.1		0.9		1.3
Foreign-derived intangible income	(0.5)		(2.8)		(1.0)
Settlements with taxing authorities	—		(1.0)		(0.2)
Sensia formation	0.1		0.1		(1.1)
Change in valuation allowance (1)	(0.5)		(1.7)		(2.7)
Share-based compensation	(1.0)		(1.1)		(1.9)
Research and development tax credit	(1.0)		(0.6)		(1.1)
Other	0.1		(0.5)		(0.2)
Effective income tax rate	14.4	%	11.9	%	9.9	%

(1) During fiscal 2021, we reversed our valuation allowance against deferred tax assets associated with the change in fair value of the PTC Shares. This resulted in a decrease to the effective tax rate of 1.7% and no remaining valuation allowance related to PTC Shares, as described further in the table below.

We operate in certain non-U.S. tax jurisdictions under government-sponsored tax incentive programs, which may be extended if certain additional requirements are met. The program, which generates the primary benefit has been extended to expire in 2032. The tax benefit attributable to these programs was $58.3 million ($0.50 per diluted share) in 2022, $61.2 million ($0.52 per diluted share) in 2021, and $59.1 million ($0.51 per diluted share) in 2020.

Deferred Taxes

The tax effects of temporary differences that give rise to our net deferred income tax assets (liabilities) consists of (in millions):

	2022		2021
Deferred income tax assets
Compensation and benefits	$	26.7	$	41.7
Inventory	10.4		12.8
Returns, rebates and incentives	61.7		37.5
Retirement benefits	80.7		153.1
Environmental remediation and other site-related costs	23.6		22.8
Share-based compensation	21.5		18.5
Other accruals and reserves	249.9		250.2
Net operating loss carryforwards	85.2		130.4
Tax credit carryforwards	19.3		20.3
Capital loss carryforwards	13.0		15.3
Other	10.7		23.7
Subtotal	602.7		726.3
Valuation allowance	(23.1)		(32.6)
Net deferred income tax assets	579.6		693.7
Deferred income tax liabilities
Property	(36.9)		(43.7)
Intangible assets	(149.8)		(160.5)
Investments	(26.0)		(64.3)
Unremitted earnings of foreign subsidiaries	(20.0)		(42.0)
Other	(2.1)		(2.3)
Deferred income tax liabilities	(234.8)		(312.8)
Total net deferred income tax assets	$	344.8	$	380.9

We provide for deferred taxes on the majority of earnings of our non-U.S. subsidiaries and have done so since the enactment of the Tax Act in 2017. We do not provide for deferred taxes on a limited number of our non-U.S. subsidiaries established in jurisdictions that apply significant restrictions for repatriating cash. The amount of cumulative non-distributed earnings considered to be indefinitely reinvested outside the U.S. at September 30, 2022, is $120.4 million. It is not practicable to estimate the amount of additional taxes that may be payable upon distribution of these earnings.

We believe it is more likely than not that we will realize our deferred tax assets through the reduction of future taxable income, other than for the deferred tax assets reflected below.

Tax attributes and related valuation allowances at September 30, 2022 consists of (in millions):

Tax attributes and related valuation allowances	Tax Benefit Amount		Valuation Allowance		Carryforward Period Ends
Non-United States net operating loss carryforward	$	3.7	$	3.7	2023	-	9/30/2030
Non-United States net operating loss carryforward	42.2		1.6		Indefinite
Non-United States capital loss carryforward	12.9		12.8		Indefinite
United States credit carryforward	9.3		—		2030	-	2041
United States capital loss carryforward	0.1		—		2026
United States net operating loss carryforward	0.1		—		2023	-	2036
United States net operating loss carryforward	26.5		—		Indefinite
State and local net operating loss carryforward	12.7		1.1		2024	-	2040
State tax credit carryforward	10.0		—		2023	-	2037
Subtotal	117.5		19.2
Other deferred tax assets	3.9		3.9		Indefinite
Total	$	121.4	$	23.1

Unrecognized Tax Benefits

A reconciliation of our gross unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):

	2022		2021		2020
Gross unrecognized tax benefits balance at beginning of year	$	4.3	$	25.5	$	19.9
Additions based on tax positions related to the current year	0.1		0.1		—
Additions based on tax positions related to prior years	—		0.4		5.6
Reductions related to settlements with taxing authorities	(0.5)		(18.1)		—
Reductions related to lapses of statute of limitations	—		(3.6)		—
Gross unrecognized tax benefits balance at end of year	$	3.9	$	4.3	$	25.5

The amount of gross unrecognized tax benefits that would reduce our effective tax rate if recognized was $3.9 million, $4.3 million, and $25.5 million at September 30, 2022, 2021, and 2020, respectively.

Accrued interest and penalties related to unrecognized tax benefits were $1.4 million and $1.5 million at September 30, 2022 and 2021, respectively. We recognize interest and penalties related to unrecognized tax benefits in the income tax provision. In 2022, benefits and expenses net to zero. Benefits (expense) recognized in 2021 and 2020 were $2.5 million and ($0.7) million, respectively.

We believe it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $3.3 million in the next 12 months as a result of the resolution of tax matters in various global jurisdictions and the lapses of statutes of limitations. If all of the unrecognized tax benefits were recognized, the net reduction to our income tax provision, including the recognition of interest and penalties and offsetting tax assets, could be up to $4.7 million.

We conduct business globally and are routinely audited by the various tax jurisdictions in which we operate. We are no longer subject to U.S. federal income tax examinations for years before 2018 and are no longer subject to state, local, and non-U.S. income tax examinations for years before 2014.