XML 75 R31.htm IDEA: XBRL DOCUMENT v3.22.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2022
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,
 202220212020
Sempra:
Income tax expense from continuing operations$556 $99 $249 
Income from continuing operations before income taxes and equity earnings$1,343 $219 $1,489 
Equity earnings, before income tax(1)
666 614 294 
Pretax income$2,009 $833 $1,783 
Effective income tax rate28 %12 %14 %
SDG&E:
Income tax expense$182 $201 $190 
Income before income taxes$1,097 $1,020 $1,014 
Effective income tax rate17 %20 %19 %
SoCalGas:
Income tax expense (benefit)$138 $(310)$96 
Income (loss) before income taxes$738 $(736)$601 
Effective income tax rate19 %42 %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 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,
 202220212020
Sempra:   
U.S. federal statutory income tax rate21 %21 %21 %
Foreign exchange and inflation effects(1)
9 1 (3)
Outside basis differences6 9 — 
Utility depreciation4 8 3 
Non-U.S. earnings taxed at rates different from the U.S. statutory income tax rate(2)
3 5 2 
State income taxes, net of federal income tax benefit1 (4)1 
Compensation-related items— (1)(1)
Impairment losses— (1)1 
Noncontrolling interests— (2)— 
Utility self-developed software expenditures— (5)(3)
Allowance for equity funds used during construction(1)(3)(1)
Tax credits(1)— (1)
Amortization of excess deferred income taxes(2)(3)(1)
Resolution of prior years’ income tax items(2)— — 
Valuation allowances(2)1 (1)
Remeasurement of deferred taxes(3)(4)— 
Utility repairs expenditures(5)(9)(4)
Other, net— (1)1 
Effective income tax rate28 %12 %14 %
SDG&E:   
U.S. federal statutory income tax rate21 %21 %21 %
State income taxes, net of federal income tax benefit4 5 5 
Depreciation3 3 3 
Self-developed software expenditures— (1)(4)
Amortization of excess deferred income taxes(2)(2)(1)
Allowance for equity funds used during construction(2)(2)(2)
Resolution of prior years’ income tax items(2)— — 
Repairs expenditures(5)(4)(3)
Effective income tax rate17 %20 %19 %
SoCalGas:   
U.S. federal statutory income tax rate21 %21 %21 %
Depreciation5 (5)5 
State income taxes, net of federal income tax benefit2 11 2 
Nondeductible expenditures2 — 2 
Self-developed software expenditures— 5 (4)
Amortization of excess deferred income taxes(2)2 (1)
Allowance for equity funds used during construction(2)1 (1)
Repairs expenditures(6)5 (7)
Other, net(1)2 (1)
Effective income tax rate19 %42 %16 %
(1)    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. In 2021 and 2020, we also recognized gains (losses) in Other Income (Expense), Net, on the Consolidated Statements of Operations from foreign currency derivatives that were partially hedging Sempra Infrastructure’s exposure to movements in the Mexican peso from its controlling interest in IEnova.
(2)    Related to operations in Mexico.
We expect to repatriate approximately $2.1 billion of foreign undistributed earnings in the foreseeable future, and have accrued $65 million of U.S. state deferred income tax liability at December 31, 2022. We repatriated approximately $38 million to the U.S. in 2021.
In the year ended December 31, 2022, we recognized income tax expense of $120 million for a deferred income tax liability related to outside basis differences in our foreign subsidiaries that we had previously considered to be indefinitely reinvested. 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, 2022. 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 table below presents the geographic components of pretax income.
PRETAX INCOME – SEMPRA
(Dollars in millions)
 Years ended December 31,
 202220212020
By geographic components:
U.S.$1,449 $346 $1,461 
Non-U.S.560 487 322 
Total(1)
$2,009 $833 $1,783 
(1)    See the Income Tax Expense (Benefit) and Effective Income Tax Rates table above for the calculation of pretax income.
U.S. pretax income was lower in 2021 compared to 2022 and 2020 primarily due to the 2021 charges at SoCalGas related to civil litigation pertaining to the Leak, which we describe in Note 16.
The components of income tax expense are as follows.
INCOME TAX EXPENSE (BENEFIT)
(Dollars in millions)
 Years ended December 31,
 202220212020
Sempra:   
Current:   
U.S. state$(1)$(6)$(22)
Non-U.S.165 183 112 
Total164 177 90 
Deferred:   
U.S. federal248 (9)157 
U.S. state50 (37)36 
Non-U.S.94 (31)(34)
Total392 (77)159 
Deferred investment tax credits— (1)— 
Total income tax expense$556 $99 $249 
SDG&E:   
Current:   
U.S. federal$76 $35 $121 
U.S. state13 13 34 
Total89 48 155 
Deferred:   
U.S. federal54 99 11 
U.S. state38 54 25 
Total92 153 36 
Deferred investment tax credits1 — (1)
Total income tax expense$182 $201 $190 
SoCalGas:   
Current:   
U.S. federal$(5)$134 $163 
U.S. state(3)50 45 
Total(8)184 208 
Deferred:   
U.S. federal125 (334)(85)
U.S. state22 (159)(28)
Total147 (493)(113)
Deferred investment tax credits(1)(1)1 
Total income tax expense (benefit)$138 $(310)$96 
The tables below present the components of deferred income taxes:
DEFERRED INCOME TAXES
(Dollars in millions)
 December 31,
 20222021
Sempra:
Deferred income tax liabilities:  
Differences in financial and tax bases of fixed assets, investments and other assets(1)
$5,533 $5,230 
U.S. state and non-U.S. withholding tax on repatriation of foreign earnings53 47 
Regulatory balancing accounts632 538 
Right-of-use assets – operating leases177 160 
Property taxes60 52 
Postretirement benefits31 — 
Other deferred income tax liabilities55 50 
Total deferred income tax liabilities6,541 6,077 
Deferred income tax assets:  
Tax credits1,210 1,135 
Net operating losses579 706 
Postretirement benefits— 30 
Compensation-related items144 164 
Operating lease liabilities164 140 
Other deferred income tax assets40 130 
State income taxes— 21 
Bad debt allowance48 33 
Accrued expenses not yet deductible92 575 
Deferred income tax assets before valuation allowances2,277 2,934 
Less: valuation allowances192 183 
Total deferred income tax assets2,085 2,751 
Net deferred income tax liability(2)
$4,456 $3,326 
(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, 2022 and 2021, includes $135 and $151, respectively, recorded as a noncurrent asset and $4,591 and $3,477, respectively, recorded as a noncurrent liability on the Consolidated Balance Sheets.
DEFERRED INCOME TAXES
(Dollars in millions)
 SDG&ESoCalGas
 December 31,December 31,
 2022202120222021
Deferred income tax liabilities:    
Differences in financial and tax bases of utility plant and other assets$2,157 $1,970 $1,568 $1,444 
Regulatory balancing accounts397 323 236 215 
Right-of-use assets – operating leases79 52 12 16 
Property taxes38 35 21 17 
Postretirement benefits— — 45 — 
Other— 1 — 1 
Total deferred income tax liabilities2,671 2,381 1,882 1,693 
Deferred income tax assets:    
Tax credits5 5 2 3 
Postretirement benefits— — — 18 
Compensation-related items9 12 27 33 
Operating lease liabilities79 52 12 16 
Bad debt allowance19 16 23 15 
State income taxes5 4 — 12 
Accrued expenses not yet deductible10 16 59 539 
Net operating losses— — 441 — 
Other4 1 12 18 
Total deferred income tax assets131 106 576 654 
Net deferred income tax liability$2,540 $2,275 $1,306 $1,039 

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, 2022Year expiration begins
Sempra:
U.S. federal:
NOLs(1)
$2,192 
Indefinite
General business tax credits(1)
450 2032
Foreign tax credits(2)
766 2024
U.S. state(2):
NOLs
3,662 2023
General business tax credits
35 2023
Non-U.S. NOLs(2)
164 2023
SoCalGas:
U.S. federal NOLs(1)
$1,540 Indefinite
U.S. state NOLs(1)
1,729 2042
(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,
20222021
Sempra:
U.S. federal$115 $128 
U.S. state51 31 
Non-U.S. 26 24 
$192 $183 
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)
 202220212020
Sempra:   
Balance at January 1$304 $99 $93 
Increase in prior period tax positions16 3 3 
Decrease in prior period tax positions(2)(2)(1)
Settlements with tax authorities(43)— — 
Expiration of statutes of limitations(1)— — 
Increase in current period tax positions4 204 4 
Balance at December 31$278 $304 $99 
Of December 31 balance, amounts related to tax positions that if recognized
in future years would
   
decrease the effective tax rate(1)
(117)$(105)$(87)
increase the effective tax rate(1)
38 34 31 
SDG&E:   
Balance at January 1$14 $13 $12 
Increase in prior period tax positions— 1 1 
Balance at December 31$14 $14 $13 
Of December 31 balance, amounts related to tax positions that if recognized
in future years would
   
decrease the effective tax rate(1)
$(11)$(11)$(10)
increase the effective tax rate(1)
1 1 1 
SoCalGas:   
Balance at January 1$72 $68 $64 
Increase in prior period tax positions1 1 1 
Increase in current period tax positions4 3 3 
Balance at December 31$77 $72 $68 
Of December 31 balance, amounts related to tax positions that if recognized
in future years would
   
decrease the effective tax rate(1)
$(67)$(63)$(59)
increase the effective tax rate(1)
37 33 30 
(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)
 December 31,
 202220212020
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 (Benefit) on the Consolidated Statements of Operations. Sempra, SDG&E and SoCalGas each accrued negligible amounts for interest expense and penalties at December 31, 2022 and 2021 on the Consolidated Balance Sheets, and recorded negligible amounts for interest expense and penalties on 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 2018. 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.
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 2018 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.