Income Taxes

3 Months Ended

Mar. 31, 2024

Income Taxes

Income Taxes

4.    Income Taxes

Our effective income tax rate was 18.6% and 23.6% for the three months ended March 31, 2024 and 2023, respectively. The decrease in our effective income tax rate when comparing the three months ended March 31, 2024 and 2023 was primarily driven by (i) an increase in federal tax credits and (ii) an increase in the excess tax benefits associated with equity-based compensation; partially offset by an increase in pre-tax income in the current period. We evaluate our effective income tax rate at each interim period and adjust it as facts and circumstances warrant.

Investments Qualifying for Federal Tax Credits 

Renewable Natural Gas — Through our subsidiaries including our WM Renewable Energy segment, we have invested in building landfill gas-to-energy facilities in the U.S. and Canada that produce renewable electricity and RNG. We expect our new RNG facilities to qualify for federal tax credits and to realize those credits through 2027 under Sections 48 and 45Z of the Internal Revenue Code.

During the three months ended March 31, 2024 and 2023, we recognized a reduction in our income tax expense of $37 million and $2 million, respectively due to federal tax credits expected to be realized from our RNG investments.

Low-Income Housing — We have significant financial interests in entities established to invest in and manage low-income housing properties. We support the operations of these entities in exchange for a pro-rata share of the tax credits they generate. The low-income housing investments qualify for federal tax credits that we expect to realize through 2033 under Section 42 or Section 45D of the Internal Revenue Code.

We account for our investments in these entities using the equity method of accounting, recognizing our share of each entity’s results of operations and other reductions in the value of our investments in equity in net losses of unconsolidated entities, within our Condensed Consolidated Statements of Operations.

During the three months ended March 31, 2024 and 2023, we recognized $20 million and $13 million of net losses, respectively, and a reduction in our income tax expense of $28 million and $22 million, respectively, primarily due to federal tax credits realized from these investments as well as the tax benefits from the pre-tax losses realized. In addition, during the three months ended March 31, 2024 and 2023, we recognized interest expense of $6 million and $4 million, respectively, associated with our investments in low-income housing properties. See Note 11 for additional information related to these unconsolidated variable interest entities.

Equity-Based Compensation — During the three months ended March 31, 2024 and 2023, we recognized a reduction in our income tax expense of $21 million and $7 million, respectively, for excess tax benefits related to the vesting or exercise of equity-based compensation awards.