Income Taxes

12 Months Ended

Oct. 31, 2021

Income Taxes

Income Taxes

Note 15. Income Taxes

The provision for income taxes by taxing jurisdiction and by significant component consisted of the following (in millions of dollars):

	2021		2020		2019
Current:
U.S.:
Federal	$	231.4	$	273.2	$	351.1
State		15.2		9.0		1.9
Foreign		37.2		27.5		29.0
Total current		283.8		309.7		382.0
Deferred:
U.S.:
Federal		(69.7)		(179.1)		(279.9)
State		2.2		(4.1)		(.6)
Foreign		(15.8)		7.6		(6.0)
Total deferred		(83.3)		(175.6)		(286.5)
Provision for income taxes	$	200.5	$	134.1	$	95.5

The taxable income of the Company is included in the consolidated U.S. income tax return of Deere & Company. Under a tax sharing agreement with Deere & Company, the Company’s provision for income taxes is generally recorded as if Capital Corporation and each of its subsidiaries filed separate income tax returns, with a modification for realizability of certain tax benefits. The difference between the provision for income taxes recorded by the Company and the provision for income taxes calculated on an unmodified, separate return basis was not material in 2021, 2020, or 2019.

The amounts payable to Deere & Company under the tax sharing agreement at October 31, 2021 and November 1, 2020 were $9.6 million and $42.9 million, respectively. The tax sharing payable is included in accounts payable and accrued expenses on the consolidated balance sheet.

A comparison of the statutory and effective income tax provision and reasons for related differences follows (in millions of dollars):

	2021		2020		2019
U.S. federal income tax provision at a statutory rate (21 percent)	$	190.8	$	116.9	$	107.7
Increase (decrease) resulting from:
Net deferred tax liability remeasurement						4.8
Deemed earnings repatriation tax						(13.9)
Tax rates on foreign earnings		5.5		5.8		4.4
State and local income taxes, net of federal income tax benefit		13.7		3.8		1.0
Other - net		(9.5)		7.6		(8.5)
Provision for income taxes	$	200.5	$	134.1	$	95.5

At October 31, 2021, accumulated earnings of $77.1 million in certain subsidiaries outside the U.S. are expected to remain indefinitely reinvested outside of the U.S. As such, a provision for foreign withholding taxes has not been made. Determination of the amount of foreign withholding tax liability on these unremitted earnings is not practicable.

Deferred income taxes arise because there are certain items that are treated differently for financial accounting than for income tax reporting purposes. An analysis of deferred income tax assets and liabilities at October 31, 2021 and November 1, 2020 was as follows (in millions of dollars):

	2021				2020
	Deferred		Deferred		Deferred		Deferred
	Tax		Tax		Tax		Tax
	Assets		Liabilities		Assets		Liabilities
Lease transactions			$	310.4			$	404.6
Tax over book depreciation	$	1.1						3.8
Deferred retail note finance income				1.0				.8
Accrual for retirement and other benefits		4.8			$	6.2
Accrual for other employee benefits		15.9				12.1
Allowance for credit losses		31.9				37.1
Tax loss and tax credit carryforwards		18.7				25.3
Federal taxes on deferred state tax deductions		7.4				10.7
Miscellaneous accruals and other		16.4		8.2		13.5		4.5
Less valuation allowances		(9.0)				(10.0)
Deferred income tax assets and liabilities	$	87.2	$	319.6	$	94.9	$	413.7

At October 31, 2021, tax loss and tax credit carryforwards of $18.7 million were available, with $15.2 million expiring from 2029 through 2038 and $3.5 million with an indefinite carryforward period.

A reconciliation of the total amounts of unrecognized tax benefits at October 31, 2021, November 1, 2020, and November 3, 2019 was as follows (in millions of dollars):

	2021		2020		2019
Beginning of year balance	$	33.3	$	32.5	$	36.3
Increases to tax positions taken during the current year		11.2		7.4		6.9
Increases to tax positions taken during prior years		1.4		3.1		.8
Decreases to tax positions taken during prior years		(5.8)		(4.9)		(7.1)
Decreases due to lapse of statute of limitations		(3.7)		(4.8)		(4.4)
Settlements		(1.5)
End of year balance	$	34.9	$	33.3	$	32.5

The amount of unrecognized tax benefits at October 31, 2021 and November 1, 2020 that would impact the effective tax rate if the tax benefits were recognized was $24.0 million and $17.2 million, respectively. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The Company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next twelve months would not be significant.

The Company files its tax returns according to the tax laws of the jurisdictions in which it operates, which includes the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company is included in the consolidated U.S. income tax return and various state returns of Deere & Company. The U.S. Internal Revenue Service has completed the examination of Deere & Company’s federal income tax returns for periods prior to 2015. The federal income tax returns for years 2015, 2016, and 2017 are currently under examination. Various state and foreign income tax returns also remain subject to examination by taxing authorities.

The Company’s policy is to recognize interest related to income taxes in interest expense and other income, and recognize penalties in administrative and operating expenses. During 2021, interest and penalties previously accrued were reversed when tax positions were effectively settled or adjusted, resulting in a $1.6 million net benefit. During 2020 and 2019, the total amount of expense from interest and penalties was $.5 million and none, respectively. The total amount of income from interest and penalties for 2020 and 2019 was $.7 million and $5.3 million, respectively, and none for 2021. At October 31, 2021 and November 1, 2020, the liability for accrued interest and penalties totaled $12.3 million and $14.6 million, respectively.