Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 14 – Income Taxes

A provision for income taxes of $1.13 billion, $699 million and $292 million has been recognized for the years ended December 31, 2022, 2021 and 2020, respectively, related primarily to our subsidiaries located outside of the U.S. Our income before provision for income taxes for the years ended December 31, 2022, 2021 and 2020 was as follows (in millions):

	Year Ended December 31,
	2022		2021			2020
Domestic	$	5,524	$	(130	)	$	(198	)
Noncontrolling interest and redeemable    noncontrolling interest		31		125			141
Foreign		8,164		6,348			1,211
Income before income taxes	$	13,719	$	6,343		$	1,154

The components of the provision for income taxes for the years ended December 31, 2022, 2021 and 2020 consisted of the following (in millions):

	Year Ended December 31,
	2022			2021			2020
Current:
Federal	$	—		$	—		$	—
State		62			9			4
Foreign		1,266			839			248
Total current		1,328			848			252
Deferred:
Federal		26			—			—
State		1			—			—
Foreign		(223	)		(149	)		40
Total deferred		(196	)		(149	)		40
Total provision for income taxes	$	1,132		$	699		$	292

Deferred tax assets (liabilities) as of December 31, 2022 and 2021 consisted of the following (in millions):

	December 31,			December 31,
	2022			2021
Deferred tax assets:
Net operating loss carry-forwards	$	4,486		$	7,607
Research and development credits		1,184			923
Other tax credits and attributes		217			335
Deferred revenue		751			546
Inventory and warranty reserves		819			377
Stock-based compensation		185			115
Operating lease right-of-use liabilities		554			430
Capitalized research and development costs		693			—
Deferred GILTI tax assets		466			556
Accruals and others		178			191
Total deferred tax assets		9,533			11,080
Valuation allowance		(7,349	)		(9,074	)
Deferred tax assets, net of valuation allowance		2,184			2,006
Deferred tax liabilities:
Depreciation and amortization		(1,178	)		(1,279	)
Investment in certain financing funds		(238	)		(209	)
Operating lease right-of-use assets		(506	)		(391	)
Deferred revenue		—			(49	)
Other		(15	)		(13	)
Total deferred tax liabilities		(1,937	)		(1,941	)
Deferred tax assets (liabilities), net of valuation allowance	$	247		$	65

As of December 31, 2022, we recorded a valuation allowance of $7.35 billion for the portion of the deferred tax asset that we do not expect to be realized. The valuation allowance on our net deferred taxes decreased by $1.73 billion in the year ended December 31, 2022, and increased by $6.14 billion and $974 million during the years ended December 31, 2021 and 2020, respectively. The changes in valuation allowance are primarily due to changes in U.S. deferred tax assets and liabilities incurred in the respective year. The decrease in the year ended December 31, 2022 included utilization of $13.57 billion net operating loss carry forwards to offset our 2022 U.S. taxable income. We have $532 million of deferred tax assets in foreign jurisdictions, which management believes are more-likely-than-not to be realized given the expectation of future earnings in these jurisdictions. We did not have any material releases of valuation allowance for the years ended December 31, 2022, 2021 and 2020. We continue to monitor the realizability of the U.S. deferred tax assets taking into account multiple factors. In completing this assessment, we considered both objective and subjective factors. These factors included, but were not limited to, a history of losses in prior years, excess tax benefits related to stock-based compensation, future reversal of existing temporary differences and tax planning strategies. After evaluating all available evidence, we intend to continue maintaining a full valuation allowance on our U.S. deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Given the improvement in our operating results and depending on the amount of stock-based compensation tax deductions available in the future, we may release the valuation allowance associated with the U.S. deferred tax assets in the next few years. Release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.

The reconciliation of taxes at the federal statutory rate to our provision for income taxes for the years ended December 31, 2022, 2021 and 2020 was as follows (in millions):

	Year Ended December 31,
	2022			2021			2020
Tax at statutory federal rate	$	2,881		$	1,332		$	242
State tax, net of federal benefit		51			6			4
Nondeductible executive compensations		14			201			184
Other nondeductible expenses		89			67			52
Excess tax benefits related to stock based    compensation		(745	)		(7,123	)		(666	)
Foreign income rate differential		(923	)		(668	)		33
U.S. tax credits		(276	)		(328	)		(181	)
Noncontrolling interests and redeemable    noncontrolling interests adjustment		42			11			5
GILTI inclusion		1,279			1,008			133
Unrecognized tax benefits		252			28			1
Change in valuation allowance		(1,532	)		6,165			485
Provision for income taxes	$	1,132		$	699		$	292

As of December 31, 2022, we had $18.0 billion of federal and $14.0 billion of state net operating loss carry-forwards available to offset future taxable income, some of which, if not utilized, will begin to expire in 2023 for federal and state purposes. A portion of these losses were generated by our acquisition of SolarCity Corporation (“SolarCity”) and some of the other companies we acquired, and therefore are subject to change of control provisions, which limit the amount of acquired tax attributes that can be utilized in a given tax year. We do not expect the change of control limitations or expiration dates to significantly impact our ability to utilize these attributes.

As of December 31, 2022, we had research and development tax credits of $969 million and $734 million for federal and state income tax purposes, respectively. If not utilized, the federal research and development tax credits will expire in various amounts beginning in 2024. However, the state of California research and development tax credits can be carried forward indefinitely. In addition, we have other general business tax credits of $197 million for federal income tax purposes, which will not begin to significantly expire until 2033.

Federal and state laws can impose substantial restrictions on the utilization of net operating loss and tax credit carry-forwards in the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code. We have determined that no significant limitation would be placed on the utilization of our net operating loss and tax credit carry-forwards due to prior ownership changes.

The local government of Shanghai granted a beneficial corporate income tax rate of 15% to certain eligible enterprises, compared to the 25% statutory corporate income tax rate in China. Our Gigafactory Shanghai subsidiary was granted this beneficial income tax rate of 15% for 2019 through 2023.

As of December 31, 2022, we intend to indefinitely reinvest our foreign earnings and cash unless such repatriation results in no or minimal tax costs. We have recorded the taxes associated with the earnings we intend to repatriate in the future. For the earnings we intend to indefinitely reinvest, no deferred tax liabilities for foreign withholding or other taxes have been recorded. The estimated amount of such unrecognized deferred tax liability associated with the indefinitely reinvested earnings is approximately $168 million.

Uncertain Tax Positions

The changes to our gross unrecognized tax benefits were as follows (in millions):

December 31, 2019	$	273
Increases in balances related to prior year tax positions		66
Increases in balances related to current year tax    positions		41
December 31, 2020		380
Increases in balances related to prior year tax positions		117
Decreases in balances related to prior year tax positions		(90	)
Increases in balances related to current year tax    positions		124
December 31, 2021		531
Increases in balances related to prior year tax positions		136
Decreases in balances related to prior year tax positions		(12	)
Increases in balances related to current year tax positions		222
Decreases in balances related to expiration of the statute of limitations		(7	)
December 31, 2022	$	870

As of December 31, 2022, accrued interest and penalties related to unrecognized tax benefits are classified as income tax expense and amounted to $31 million. Unrecognized tax benefits of $572 million, if recognized, would not affect our effective tax rate since the tax benefits would increase a deferred tax asset that is currently fully offset by a valuation allowance.

We file income tax returns in the U.S. and various state and foreign jurisdictions. We are currently under examination by the Internal Revenue Service (“IRS”) for the years 2015 to 2018. Additional tax years within the periods 2004 to 2014 and 2019 to 2021 remain subject to examination for federal income tax purposes. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and state income tax purposes. Our returns for 2004 and subsequent tax years remain subject to examination in U.S. state and foreign jurisdictions.

Given the uncertainty in timing and outcome of our tax examinations, an estimate of the range of the reasonably possible change in gross unrecognized tax benefits within twelve months cannot be made at this time.