INCOME TAXES

9 Months Ended

Sep. 30, 2022

INCOME TAXES

INCOME TAXES

12. INCOME TAXES

The Company’s tax rate was 14.6% and 18.3% for the third quarter of 2022 and 2021, respectively, and 17.9% and 21.2% for the first nine months of 2022 and 2021, respectively. The change in the Company’s tax rate for the third quarter and first nine months of 2022 compared to the third quarter and first nine months of 2021 was driven primarily by the impact of discrete tax items and special (gains) and charges. Further information related to special (gains) and charges is included in Note 2.

The Company recognized a net tax benefit related to discrete tax items of $14.2 million and $9.5 million in the third quarter and first nine months of 2022, respectively. This included a deferred tax benefit of $14.6 million associated with utilization of tax attributes as a result of legal entity rationalization and share-based compensation excess tax benefits of $0.7 million and $4.3 million in the third quarter and first nine months of 2022, respectively. The amount of the excess tax benefit is subject to variation in stock price and award exercises. Additionally, the Company recognized discrete tax expense of $1.1 million and $9.4 million during the third quarter and first nine months of 2022, respectively, primarily due to audit settlements, reserves for uncertain tax positions, prior year return adjustments, repricing of deferred tax balances, and other changes in estimates.

The Company recognized a net tax benefit related to discrete tax items of $6.3 million in the third quarter and a net tax expense of $17.5 million in the first nine months of 2021. This included a tax benefit of $4.0 million in the third quarter and a net tax expense of $5.5 million in the first nine months of 2021 related to prior year returns, and a deferred tax benefit of $0.4 million and deferred tax expense of $23.8 million associated with transferring certain intangible property between affiliates in the third quarter and first nine months of 2021, respectively. The share-based compensation excess tax benefit was $9.9 million and $20.7 million in the third quarter and first nine months of 2021, respectively. The remaining discrete tax expense of $8.0 million and $8.9 million in the third quarter and first nine months of 2021, respectively, was primarily due to changes in tax law, reserves for uncertain tax positions, audit settlements, and other changes in estimates.

The CHIPS Act (CHIPS) was signed into U.S. law on August 9, 2022. CHIPS includes incentives for domestic semiconductor manufacturing for expenditures incurred after December 31, 2022. The Company continues to assess qualification for the new tax incentives but does not anticipate CHIPS to have a material impact on the Company’s financial statements. 

The IRA includes a corporate alternative minimum tax on certain large corporations, incentives to address climate change mitigation and other non-income tax provisions, including an excise tax on the repurchase of corporate stock. The IRA is effective January 1, 2023. The Company continues to assess the impact of the IRA but does not anticipate the IRA to have a material impact on the Company’s financial statements.