Income Taxes

12 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The table below summarizes income from U.S. and foreign operations before taxes:

	2024	2023	2022
United States income	$2,602.5	$1,050.5	$947.9
Foreign income	1,571.0	1,227.6	1,325.3
Equity affiliates' income	647.7	604.3	481.5
Income from continuing operations before taxes	$4,821.2	$2,882.4	$2,754.7

The table below details the components of our income tax provision:

	2024		2023		2022
Current Tax Provision
Federal	$550.3		$167.6		$149.1
State		109.2		41.0	30.1
Foreign	354.7		367.3		289.3
Total current tax provision	$1,014.2		$575.9		$468.5
Deferred Tax (Benefit) Provision
Federal	(97.8)		(12.5)		15.6
State	(15.0)		(5.8)		(1.9)
Foreign	43.5		(6.4)		18.6
Total Deferred Tax (Benefit) Provision	(69.3)		(24.7)		32.3
Total Income Tax Provision	$944.9		$551.2		$500.8

Cash Paid for Taxes (Net of Cash Refunds)

Income tax payments, net of refunds, were $615.9, $645.2, and $369.2 in fiscal years 2024, 2023, and 2022, respectively. Fiscal year 2023 and 2022 reflect income tax refunds associated with discontinued operations of $0.6 and $59.6, respectively. Income tax payments for fiscal year 2024 include cash paid to purchase $50.0 of transferable tax credits that were used to offset estimated tax payments in 2024. Additional income tax payments related to the gain on the sale of the LNG business will be paid in fiscal year 2025.

U.S. Tax Cuts and Jobs Act

On 22 December 2017, the United States enacted the U.S. Tax Cuts and Jobs Act (the “Tax Act” or "Tax Reform"), which significantly changed existing U.S. tax laws, including a reduction in the federal corporate income tax rate to 21%, a deemed repatriation tax on unremitted foreign earnings, as well as other changes. As of 30 September 2024, our outstanding liability for the deemed repatriation tax was $101.8, of which $60.8 is presented within noncurrent liabilities on our consolidated balance sheets. We are paying this obligation in installments over two remaining years.

Effective Tax Rate

The effective tax rate equals the income tax provision divided by income from continuing operations before taxes. A reconciliation of the differences between the United States federal statutory tax rate and the effective tax rate is provided below:

(Percent of income before taxes)	2024		2023		2022
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.5		1.0		0.8
Income from equity affiliates	(2.4)		(3.8)		(3.4)
Foreign tax differentials	0.3		0.7		0.7
Tax on foreign repatriated earnings	—		0.5		0.7
Share-based compensation	(0.1)		(0.3)		(0.7)
Business and asset actions	—		0.7		0.1
Other	(0.7)		(0.7)		(1.0)
Effective Tax Rate	19.6	%	19.1	%	18.2	%

The sale of our LNG business resulted in a gain of $1,575.6, which increased our income from continuing operations before taxes. This increase diluted the impact of recurring effective tax rate reconciling items for fiscal year 2024.

Equity affiliates’ income, which is primarily presented net of income taxes on our consolidated income statements, favorably impacts our effective tax rate. This impact decreased in fiscal year 2024 despite an overall increase in equity affiliates' income. The reduced impact is the result of the increase in our income from continuing operations before taxes caused primarily by the sale of our LNG business. See Note 10, Equity Affiliates, for additional information.

Foreign tax differentials represent the differences between foreign earnings subject to foreign tax rates that are different than the U.S. federal statutory rate and include tax holidays and incentives. Our income tax holidays relate to operations in jurisdictions that provide reduced income tax rates for certain qualifying activities and are conditioned upon us satisfying certain requirements.

Tax on foreign repatriated earnings includes costs related to U.S. taxation of foreign operations, foreign taxation on the current and future repatriation of foreign earnings, and a U.S. benefit for related foreign tax credits. The impact has decreased primarily due to an increase in our U.S. benefit for foreign tax credits.

Share-based compensation reflects the impact from recognition of $3.6, $10.2, and $18.3 of excess tax benefits in our provision for income taxes during fiscal years 2024, 2023, and 2022, respectively.

During fiscal year 2023, we recorded a charge to net income for business and asset actions of $244.6 ($204.9 attributable to Air Products after tax). Refer to Note 5, Business and Asset Actions, for additional information. The charge included certain losses for which we could not recognize an income tax benefit and were subject to a valuation allowance of $36.0. Partially offsetting the valuation allowance cost was a $15.9 income tax benefit from a tax election related to a non-U.S. subsidiary. Fiscal year 2024 includes business and asset actions recorded at applicable statutory income tax rates.

Deferred Tax Assets and Liabilities

The significant components of deferred tax assets and liabilities are as follows:

30 September	2024	2023
Gross Deferred Tax Assets
Tax loss carryforwards	$132.2	$141.8
Revenue recognition	100.3	38.8
Reserves and accruals	83.1	65.2
Retirement benefits and compensation accruals	62.5	75.2
Tax credits and other tax carryforwards	45.5	46.2
Currency losses	12.6	—
Valuation allowance	(158.4)	(153.3)
Other	44.6	42.5
Deferred Tax Assets	$322.4	$256.4
Gross Deferred Tax Liabilities
Plant and equipment	$1,205.8	$1,192.0
Currency gains	—	20.6
Unremitted earnings of foreign entities	103.4	72.0
Partnership and other investments	19.2	18.6
Intangible assets	17.3	48.5
Other	8.8	11.1
Deferred Tax Liabilities	$1,354.5	$1,362.8
Net Deferred Income Tax Liability	$1,032.1	$1,106.4

Deferred tax assets and liabilities are included within the consolidated balance sheets as follows:

	2024	2023
Deferred Tax Assets
Other noncurrent assets	$127.8	$159.6
Deferred Tax Liabilities
Deferred income taxes	1,159.9	1,266.0
Net Deferred Income Tax Liability	$1,032.1	$1,106.4

Deferred tax assets for "Tax loss carryforwards" decreased primarily due to the utilization of substantially all U.S. capital losses carryforwards against the gain on sale of our LNG business. The deferred tax assets for "Reserves and accruals" were impacted by changes in tax deferred deductions. Deferred tax assets for "Currency losses" changed from "Currency gains" in the prior year primarily due to movements in unrealized foreign currency losses for income tax purposes. Deferred tax assets for "Revenue recognition" increased primarily due to timing differences on proceeds associated with the sale of the LNG business.

Deferred tax liabilities related to "Plant and equipment" increased due to the impact of accelerated tax depreciation deductions in excess of book depreciation. Deferred tax liabilities related to "Intangible assets" decreased primarily due to the impact of capitalizing research and development expenditures for U.S tax purposes. "Unremitted earnings of foreign entities" increased primarily due to the realization of an income tax benefit from a tax election related to a non-U.S. subsidiary that was a deferred benefit in the prior year.

As of 30 September 2024, we had the following deferred tax assets for certain tax credits:

Jurisdiction	Gross Tax Asset	Expiration Period
U.S. State	$2.7	2025 - 2038
U.S. Federal	19.7	2030 - 2034
Credits in Foreign Jurisdictions	18.1	2025 - 2033; Indefinite

Of the $18.1 credits in foreign jurisdictions, $18.0 have indefinite carryforward periods.

As of 30 September 2024, we had the following loss carryforwards:

Jurisdiction	Gross Loss Carryforward	Expiration Period
U.S. State Net Operating Loss	$206.7	2025 - 2040
Foreign Net Operating Loss	347.3	2025 - 2041; Indefinite
Foreign Capital Loss	214.0	Indefinite

Of the $347.3 of foreign net operating loss carryforwards, $99.7 have indefinite carryforward periods.

The valuation allowance was $158.4 and $153.3 as of 30 September 2024 and 2023, respectively. As of 30 September 2024, the balance primarily related to $43.8 of foreign loss carryforwards and credits, $18.2 of U.S. federal foreign income tax credits, $53.5 related to foreign capital losses, and $39.9 related to other deferred tax assets including those established during fiscal year 2023 from our Business and Asset Actions. If events warrant the reversal of the valuation allowance, it would result in a reduction of tax expense. We believe it is more likely than not that future earnings and reversal of deferred tax liabilities will be sufficient to utilize our deferred tax assets, net of existing valuation allowance, as of 30 September 2024.

We record income taxes on the undistributed earnings of our foreign subsidiaries and corporate joint ventures unless those earnings are indefinitely reinvested. Such earnings may be subject to foreign withholding and other taxes. The cumulative undistributed earnings that are considered to be indefinitely reinvested in foreign subsidiaries and corporate joint ventures are included in retained earnings on the consolidated balance sheets and amounted to $9.2 billion as of 30 September 2024. An estimated $845.3 in additional foreign withholding and other income taxes would be due if these earnings were remitted as dividends.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of the unrecognized tax benefits, which excludes interest and penalties, is as follows:

	2024	2023	2022
Unrecognized tax benefits balance at beginning of year	$96.5	$103.5	$140.3
Additions for tax positions of the current year	14.6	10.9	7.4
Additions for tax positions of prior years	1.4	1.2	6.6
Reductions for tax positions of prior years	(0.3)	(6.0)	(15.4)
Settlements	(3.7)	(3.9)	(0.6)
Statute of limitations expiration	(9.9)	(10.6)	(25.5)
Foreign currency translation	2.4	1.4	(9.3)
Unrecognized tax benefits balance at end of year	$101.0	$96.5	$103.5

Of our unrecognized tax benefits as of 30 September 2024, $80.3 would impact the effective tax rate from continuing operations if recognized.

In fiscal year 2022, reserves for unrecognized tax benefits decreased $25.5 due to statute of limitation expirations. We released reserves of $17.2 related to the sale of PMD. Upon release of the reserves, we recorded income tax benefits of $14.8 as a component of discontinued operations. The PMD reserve was net of related deferred tax assets of $2.4. In fiscal year 2023 we released an additional $5.2 of reserves related to the sale of PMD. Fiscal year 2022 also reflects a $15.4 reduction for tax positions of prior years. This was primarily due to a $10.6 reduction caused by changes to income tax rates.

Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense and totaled $1.8, $5.0, and $1.2 in fiscal years 2024, 2023, and 2022, respectively. Our accrued balance for interest and penalties was $28.5 and $26.3 as of 30 September 2024 and 2023, respectively.

Income Tax Examinations

We are currently under examination in a number of tax jurisdictions. It is reasonably possible that a change in our unrecognized tax benefits may occur in fiscal year 2025 if any of these examinations are resolved during the next twelve months. However, quantification of an estimated range cannot be made as of the date of this report.

We generally remain subject to examination in the following major tax jurisdictions for the years indicated below:

Major Tax Jurisdiction	Open Tax Years
North America
United States – Federal	2018 - 2024
United States – State	2013 - 2024
Canada	2018 - 2024
Europe
France	2021 - 2024
Netherlands	2019 - 2024
Spain	2017 - 2024
United Kingdom	2021 - 2024
Middle East
Saudi Arabia	2019 - 2024
Asia
China	2011 - 2024
South Korea	2015 - 2024
Taiwan	2019 - 2024
Latin America
Chile	2020 - 2024