Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

N. INCOME TAXES

The Company’s tax rate is based on income and statutory tax rates in the various jurisdictions in which the Company operates. Tax law requires certain items to be included in the Company’s tax returns at different times than the items reflected in the Company’s financial statements. As a result, the Company’s annual tax rate reflected in its financial statements is different than that reported in its tax returns. Some of these differences are permanent, such as expenses that are not deductible in the Company’s tax return, and some differences reverse over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. The Company establishes valuation allowances for its deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The components of the Company’s income before income taxes include the following:

Year Ended December 31,	2022		2021		2020
Domestic	$	2,322.9	$	1,391.4	$	1,126.5
Foreign		1,525.8		1,004.9		535.1
	$	3,848.7	$	2,396.3	$	1,661.6

The components of the Company’s provision for income taxes include the following:

Year Ended December 31,	2022			2021			2020
Current provision:
Federal	$	567.0		$	410.0		$	182.5
State		143.1			85.9			44.9
Foreign		335.0			243.5			132.6
		1,045.1			739.4			360.0
Deferred (benefit) provision:
Federal		(173.2	)		(176.0	)		(10.5	)
State		(42.0	)		(29.6	)		1.9
Foreign		7.2			(3.0	)		9.0
		(208.0	)		(208.6	)		.4
	$	837.1		$	530.8		$	360.4

Tax benefits recognized for net operating loss carryforwards were $3.9, $5.1 and $17.8 for the years ended 2022, 2021 and 2020, respectively.

A reconciliation of the statutory U.S. federal tax rate to the effective income tax rate is as follows:

	2022			2021			2020
Statutory rate		21.0	%		21.0	%		21.0	%
Effect of:
State		2.1			2.0			2.3
Research and development tax credit		(1.0	)		(1.2	)		(1.4	)
Tax on foreign earnings		.5			1.1			.8
Other, net		(.8	)		(.7	)		(1.0	)
		21.8	%		22.2	%		21.7	%

Based on the Company’s current operations, the Company does not expect that the repatriation of future foreign earnings will be subject to significant income tax as a result of the U.S. modified territorial system.

At December 31, 2022, the Company had net operating loss carryforwards of $404.6, of which $352.5 related to foreign subsidiaries and $52.1 related to states in the U.S. The related deferred tax asset was $119.2, for which a $102.3 valuation allowance has been provided. The carryforward periods range from four years to indefinite, subject to certain limitations under applicable laws. The future tax benefits of net operating loss carryforwards are evaluated on a regular basis, including a review of historical and projected operating results.

The tax effects of temporary differences representing deferred tax assets and liabilities are as follows:

At December 31,	2022			2021
Assets:
Accrued liabilities	$	252.2		$	210.9
R&D expense capitalization		153.6
Net operating loss and tax credit carryforwards		128.0			124.9
Inventory adjustments		59.5
Allowance for losses on receivables		43.8			36.5
Unrealized investment loss		16.5			.8
Other		79.1			71.1
		732.7			444.2
Valuation allowance		(116.2	)		(109.3	)
		616.5			334.9
Liabilities:
Financial Services leasing depreciation		(558.9	)		(547.1	)
Depreciation and amortization		(227.3	)		(166.8	)
Postretirement benefit plans		(120.5	)		(86.5	)
Inventory adjustments					(11.5	)
Other		(59.2	)		(33.2	)
		(965.9	)		(845.1	)
Net deferred tax liability	$	(349.4	)	$	(510.2	)

The balance sheet classifications of the Company’s deferred tax assets and liabilities are as follows:

At December 31,	2022			2021
Truck, Parts and Other:
Other noncurrent assets, net	$	199.0		$	51.5
Other liabilities		(75.5	)		(91.5	)
Financial Services:
Other assets		51.0			48.4
Deferred taxes and other liabilities		(523.9	)		(518.6	)
Net deferred tax liability	$	(349.4	)	$	(510.2	)

Cash paid for income taxes was $932.1, $761.1 and $374.0 in 2022, 2021 and 2020, respectively.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	2022			2021			2020
Balance at January 1	$	26.0		$	24.5		$	30.7
Additions for tax positions related to the current year		7.4			6.1			5.5
Additions for tax positions related to prior years		1.8			.8			.3
Reductions for tax positions related to prior years		(1.6	)					(4.2	)
Lapse of statute of limitations		(5.8	)		(5.4	)		(7.8	)
Balance at December 31	$	27.8		$	26.0		$	24.5

The Company had $27.8, $26.0 and $24.5 of unrecognized tax benefits, of which $27.8, $25.3 and $23.2 would impact the effective tax rate, if recognized, as of December 31, 2022, 2021 and 2020, respectively.

The Company recognized $.1, $(.4) and $(.7) of expense (income) related to interest in 2022, 2021 and 2020, respectively. Accrued interest expense and penalties were $.9, $.8 and $1.2 as of December 31, 2022, 2021 and 2020, respectively. Interest and penalties are classified as income taxes in the Consolidated Statements of Income.

The Company believes it is reasonably possible that approximately $5.7 of unrecognized tax benefits, resulting primarily from research and development tax credits, will be resolved within the next 12 months. As of December 31, 2022, the United States Internal Revenue Service has completed examinations of the Company’s tax returns for all years through 2014. The Company’s tax returns for other major jurisdictions remain subject to examination for the years ranging from 2012 through 2022.