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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
We provide our calculations of ETRs in the following table.
INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
 Years ended December 31,
 202120202019
Sempra:
Income tax expense from continuing operations$99 $249 $315 
Income from continuing operations before income taxes and equity earnings$219 $1,489 $1,734 
Equity earnings, before income tax(1)
614 294 30 
Pretax income$833 $1,783 $1,764 
Effective income tax rate12 %14 %18 %
SDG&E:
Income tax expense$201 $190 $171 
Income before income taxes$1,020 $1,014 $945 
Effective income tax rate20 %19 %18 %
SoCalGas:
Income tax (benefit) expense$(310)$96 $120 
(Loss) income before income taxes$(736)$601 $762 
Effective income tax rate42 %16 %16 %
(1)    We discuss how we recognize equity earnings in Note 6.

For SDG&E and SoCalGas, the CPUC requires flow-through rate-making treatment for the current income tax benefit or expense arising from certain property-related and other temporary differences between the treatment for financial reporting and income tax, which will reverse over time. Under the regulatory accounting treatment required for these flow-through temporary differences, deferred income tax assets and liabilities are not recorded to deferred income tax expense, but rather to a regulatory asset or liability, which impacts the ETR. As a result, changes in the relative size of these items compared to pretax income, from period to period, can cause variations in the ETR. The following items are subject to flow-through treatment:
▪repairs expenditures related to a certain portion of utility plant fixed assets
▪the equity portion of AFUDC, which is non-taxable
▪a portion of the cost of removal of utility plant assets
▪utility self-developed software expenditures
▪depreciation on a certain portion of utility plant assets
▪state income taxes
The AFUDC related to equity recorded for regulated construction projects at Sempra Infrastructure has similar flow-through treatment.
We record income tax (expense) benefit from the transactional effects of foreign currency and inflation. Through the first quarter of 2021, such effects are offset by net gains (losses) from foreign currency derivatives that were hedging Sempra Infrastructure’s exposure to movements in the Mexican peso from its controlling interest in IEnova.
We present in the table below reconciliations of net U.S. statutory federal income tax rates to our ETRs.
RECONCILIATION OF FEDERAL INCOME TAX RATES TO EFFECTIVE INCOME TAX RATES
 Years ended December 31,
 202120202019
Sempra:   
U.S. federal statutory income tax rate21 %21 %21 %
Outside basis differences9 — — 
Utility depreciation8 3 3 
Non-U.S. earnings taxed at rates different from the U.S. statutory income tax rate(1)
5 2 3 
Foreign exchange and inflation effects(2)
1 (3)4 
Valuation allowances1 (1)— 
Tax credits— (1)(2)
Excess deferred income taxes outside of ratemaking— — (4)
Compensation-related items(1)(1)— 
Impairment losses(1)1 — 
Noncontrolling interests(2)— — 
Allowance for equity funds used during construction(3)(1)(1)
Amortization of excess deferred income taxes(3)(1)(1)
Remeasurement of deferred taxes(4)— — 
State income taxes, net of federal income tax benefit(4)1 2 
Utility self-developed software expenditures(5)(3)(2)
Utility repairs expenditures(9)(4)(3)
Other, net(1)1 (2)
Effective income tax rate12 %14 %18 %
SDG&E:   
U.S. federal statutory income tax rate21 %21 %21 %
State income taxes, net of federal income tax benefit5 5 6 
Depreciation3 3 3 
Excess deferred income taxes outside of ratemaking— — (3)
Self-developed software expenditures(1)(4)(3)
Amortization of excess deferred income taxes(2)(1)(1)
Allowance for equity funds used during construction(2)(2)(1)
Repairs expenditures(4)(3)(3)
Other, net— — (1)
Effective income tax rate20 %19 %18 %
SoCalGas:   
U.S. federal statutory income tax rate21 %21 %21 %
State income taxes, net of federal income tax benefit11 2 4 
Repairs expenditures5 (7)(4)
Self-developed software expenditures5 (4)(2)
Amortization of excess deferred income taxes2 (1)(1)
Allowance for equity funds used during construction1 (1)(1)
Nondeductible expenditures— 2 — 
Excess deferred income taxes outside of ratemaking— — (5)
Depreciation(5)5 4 
Other, net2 (1)— 
Effective income tax rate42 %16 %16 %
(1)    Related to operations in Mexico.
(2)    Due to fluctuation of the Mexican peso against the U.S. dollar. We record income tax expense (benefit) from the transactional effects of foreign currency and inflation because of appreciation (depreciation) of the Mexican peso. We also recognize gains (losses) in Other Income (Expense), Net, on the Consolidated Statements of Operations from foreign currency derivatives that are partially hedging Sempra Infrastructure’s exposure to movements in the Mexican peso from its controlling interest in IEnova.

In January 2019, our board of directors approved a plan to sell our South American businesses and we completed the sales in the second quarter of 2020, as we discuss in Note 5. Prior to this decision, our repatriation estimate excluded post-2017 earnings and other basis differences related to our South American businesses. Because of our decision to sell our South American businesses,
we no longer assert indefinite reinvestment of these basis differences. Accordingly, we recorded the following income tax impacts from changes in outside basis differences in our discontinued operations in South America:
▪$89 million income tax benefit in 2019 primarily related to outside basis differences existing as of the January 25, 2019 approval of our plan to sell our South American businesses; and
▪$7 million income tax benefit in 2020 compared to $51 million income tax expense in 2019 related to changes in outside basis differences from earnings and foreign currency effects since January 25, 2019.
We expect to repatriate approximately $1.8 billion of foreign undistributed earnings in the foreseeable future, and have accrued $59 million of U.S. state deferred income tax liability at December 31, 2021 for repatriations that we expect will begin in 2022 as cash is generated. We repatriated approximately $4.7 billion and $254 million to the U.S. in 2020 and 2019, respectively.
We have not recorded deferred income taxes with respect to remaining basis differences of approximately $600 million between financial statement and income tax investment amounts in our non-U.S. subsidiaries because we consider them to be indefinitely reinvested as of December 31, 2021. However, the sale of NCI in SI Partners to ADIA, which we discuss in Note 1, would affect our indefinite reinvestment assertion. The remaining basis differences are calculated pursuant to U.S. federal tax law, which may differ from tax law in California and foreign jurisdictions. It is currently not practicable to determine the hypothetical amount of tax that might be payable if the underlying basis differences were realized.
The remeasurement of deferred income tax balances at SDG&E and SoCalGas in December 2017, as a result of the TCJA, resulted in excess deferred income taxes that previously had been collected from ratepayers at the higher rate. In a January 2019 decision, the CPUC directed certain excess deferred income tax balances generated by activities outside of ratemaking be allocated to shareholders rather than ratepayers. As a result, in 2019, SDG&E and SoCalGas recorded income tax benefits of $31 million and $38 million, respectively, from the release of a portion of the regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances.
The table below presents the geographic components of pretax income.
PRETAX INCOME
(Dollars in millions)
 Years ended December 31,
 202120202019
Sempra:
By geographic components:
U.S.$346 $1,461 $1,191 
Non-U.S.487 322 573 
Total(1)
$833 $1,783 $1,764 
(1)    See the Income Tax Expense (Benefit) and Effective Income Tax Rates table above for the calculation of pretax income.
U.S. pretax income was lower in 2021 compared to 2020 and 2019 primarily due to the 2021 charges at SoCalGas related to civil litigation pertaining to the Leak, which we describe in Note 16.
The components of income tax expense are as follows.
INCOME TAX EXPENSE (BENEFIT)   
(Dollars in millions)
 Years ended December 31,
 202120202019
Sempra:   
Current:   
U.S. state$(6)$(22)$(14)
Non-U.S.183 112 140 
Total177 90 126 
Deferred:   
U.S. federal(9)157 87 
U.S. state(37)36 21 
Non-U.S.(31)(34)84 
Total(77)159 192 
Deferred investment tax credits(1)— (3)
Total income tax expense$99 $249 $315 
SDG&E:   
Current:   
U.S. federal$35 $121 $35 
U.S. state13 34 31 
Total48 155 66 
Deferred:   
U.S. federal99 11 75 
U.S. state54 25 32 
Total153 36 107 
Deferred investment tax credits— (1)(2)
Total income tax expense$201 $190 $171 
SoCalGas:   
Current:   
U.S. federal$134 $163 $8 
U.S. state50 45 24 
Total184 208 32 
Deferred:   
U.S. federal(334)(85)79 
U.S. state(159)(28)10 
Total(493)(113)89 
Deferred investment tax credits(1)1 (1)
Total income tax (benefit) expense$(310)$96 $120 
The tables below present the components of deferred income taxes:
DEFERRED INCOME TAXES – SEMPRA
(Dollars in millions)
 December 31,
 202120202019
Deferred income tax liabilities:  
Differences in financial and tax bases of fixed assets, investments and other assets(1)
$5,230 $4,891 $4,052 
U.S. state and non-U.S. withholding tax on repatriation of foreign earnings47 46 153 
Regulatory balancing accounts538 587 468 
Right-of-use assets – operating leases160 144 131 
Property taxes52 51 44 
Other deferred income tax liabilities50 40 93 
Total deferred income tax liabilities6,077 5,759 4,941 
Deferred income tax assets:  
Tax credits1,135 1,161 1,136 
Net operating losses706 1,299 911 
Postretirement benefits30 162 200 
Compensation-related items164 169 161 
Operating lease liabilities140 125 131 
Other deferred income tax assets130 97 60 
State income taxes21 20 8 
Bad debt allowance33 35 4 
Accrued expenses not yet deductible575 130 52 
Deferred income tax assets before valuation allowances2,934 3,198 2,663 
Less: valuation allowances183 174 144 
Total deferred income tax assets2,751 3,024 2,519 
Net deferred income tax liability(2)
$3,326 $2,735 $2,422 
(1)    In addition to the financial over tax basis differences in fixed assets, the amount also includes financial over tax basis differences in various interests in partnerships and certain subsidiaries.
(2)    At December 31, 2021, 2020, and 2019, includes $151, $136, and $155, respectively, recorded as a noncurrent asset and $3,477, $2,871, and $2,577, respectively, recorded as a noncurrent liability on the Consolidated Balance Sheets.

DEFERRED INCOME TAXES – SDG&E AND SOCALGAS
(Dollars in millions)
 SDG&ESoCalGas
 December 31,December 31,
 202120202019202120202019
Deferred income tax liabilities:    
Differences in financial and tax bases of utility plant and other assets$1,970 $1,833 $1,735 $1,444 $1,322 $1,246 
Regulatory balancing accounts323 224 141 215 362 327 
Right-of-use assets – operating leases52 28 32 16 21 22 
Property taxes35 34 30 17 17 14 
Other1 2 14 1 1 1 
Total deferred income tax liabilities2,381 2,121 1,952 1,693 1,723 1,610 
Deferred income tax assets:    
Tax credits5 5 6 3 3 3 
Postretirement benefits— 14 37 18 123 120 
Compensation-related items12 12 6 33 36 25 
Operating lease liabilities52 28 32 16 21 22 
Bad debt allowance16 18 3 15 15 1 
State income taxes4 8 7 12 11 8 
Accrued expenses not yet deductible16 14 9 539 93 15 
Other1 3 4 18 15 13 
Total deferred income tax assets106 102 104 654 317 207 
Net deferred income tax liability$2,275 $2,019 $1,848 $1,039 $1,406 $1,403 
The following table summarizes our unused NOLs and tax credit carryforwards.
NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
(Dollars in millions)
Unused amount at December 31, 2021Year expiration begins
Sempra:
U.S. federal:
NOLs(1)
$3,263 
Indefinite
General business tax credits(1)
436 2032
Foreign tax credits(2)
688 2024
U.S. state(2):
NOLs
2,938 2022
General business tax credits
6 2022
Non-U.S.(2) – NOLs
248 2022
(1)    We have recorded deferred income tax benefits on these NOLs and tax credits, in total, because we currently believe they will be realized on a more-likely-than-not-basis.
(2)    We have not recorded deferred income tax benefits on a portion of these NOLs and tax credits because we currently believe they will not be realized on a more-likely-than-not-basis, as discussed below.

A valuation allowance is recorded when, based on more-likely-than-not criteria, negative evidence outweighs positive evidence with regard to our ability to realize a deferred income tax asset in the future. Of the valuation allowances recorded to date, the negative evidence outweighs the positive evidence primarily due to cumulative pretax losses in various U.S. state and non-U.S. jurisdictions resulting in deferred income tax assets that we currently do not believe will be realized on a more-likely-than-not basis. The following table provides the valuation allowances that we recorded against a portion of our total deferred income tax assets shown above in the “Deferred Income Taxes – Sempra” table.
VALUATION ALLOWANCES
(Dollars in millions)
December 31,
202120202019
Sempra:
U.S. federal
$128 $118 $90 
U.S. state
31 32 33 
Non-U.S.
24 24 21 
$183 $174 $144 
Following is a reconciliation of the changes in unrecognized income tax benefits and the potential effect on our ETR for the years ended December 31:
RECONCILIATION OF UNRECOGNIZED INCOME TAX BENEFITS
(Dollars in millions)
 202120202019
Sempra:   
Balance at January 1$99 $93 $119 
Increase in prior period tax positions3 3 5 
Decrease in prior period tax positions(2)(1)— 
Increase in current period tax positions204 4 2 
Settlements with taxing authorities— — (32)
Expiration of statutes of limitations— — (1)
Balance at December 31$304 $99 $93 
Of December 31 balance, amounts related to tax positions that if recognized
in future years would
   
decrease the effective tax rate(1)
$(105)$(87)$(81)
increase the effective tax rate(1)
34 31 27 
SDG&E:   
Balance at January 1$13 $12 $11 
Increase in prior period tax positions1 1 1 
Balance at December 31$14 $13 $12 
Of December 31 balance, amounts related to tax positions that if recognized
in future years would
   
decrease the effective tax rate(1)
$(11)$(10)$(9)
increase the effective tax rate(1)
1 1 1 
SoCalGas:   
Balance at January 1$68 $64 $61 
Increase in prior period tax positions1 1 1 
Increase in current period tax positions3 3 2 
Balance at December 31$72 $68 $64 
Of December 31 balance, amounts related to tax positions that if recognized
in future years would
   
decrease the effective tax rate(1)
$(63)$(59)$(55)
increase the effective tax rate(1)
33 30 26 
(1)    Includes temporary book and tax differences that are treated as flow-through for ratemaking purposes, as discussed above.

It is reasonably possible that within the next 12 months, unrecognized income tax benefits could decrease due to the following:
POSSIBLE DECREASES IN UNRECOGNIZED INCOME TAX BENEFITS WITHIN 12 MONTHS
(Dollars in millions)
 At December 31,
 202120202019
Sempra:   
Potential resolution of audit issues with various U.S. federal, state and local
and non-U.S. taxing authorities
$8 $8 $8 
SDG&E:   
Potential resolution of audit issues with various U.S. federal, state and local
taxing authorities
$6 $6 $6 
SoCalGas:   
Potential resolution of audit issues with various U.S. federal, state and local
taxing authorities
$2 $2 $2 

Amounts accrued for interest and penalties associated with unrecognized income tax benefits are included in Income Tax Expense on the Consolidated Statements of Operations. Sempra accrued negligible amounts at December 31, 2021 and 2020 and $1 million for interest expense and penalties at December 31, 2019 on the Consolidated Balance Sheets, and recorded negligible amounts for interest and penalties in the Consolidated Statements of Operations for all periods presented. SDG&E and SoCalGas
each accrued negligible amounts for interest expense and penalties at December 31, 2021, 2020, and 2019 on the Consolidated Balance Sheets, and recorded negligible amounts of interest expense and penalties in the Consolidated Statements of Operations for all periods presented.
INCOME TAX AUDITS
Sempra is subject to U.S. federal income tax as well as income tax of multiple state and non-U.S. jurisdictions. We remain subject to examination for U.S. federal tax years after 2017. We are subject to examination by major state tax jurisdictions for tax years after 2012. Certain major non-U.S. income tax returns for tax years 2013 through the present are open to examination. We are also open to examination for non-U.S. income tax returns related to our prior interest in our commodities business, which we divested in 2010, for years 2009 and 2010.
SDG&E and SoCalGas are subject to U.S. federal income tax and state income tax. They remain subject to examination for U.S. federal tax years after 2017 and state tax years after 2012.
In addition, Sempra has filed protests to contest proposed state audit adjustments for tax years 2009 through 2012. The pre-2013 tax years for our major state tax jurisdictions are closed to new issues; therefore, no additional tax may be assessed by the taxing authorities for these tax years.