Income Taxes

12 Months Ended

Mar. 31, 2025

Income Tax Disclosure [Abstract]

Income Taxes

Note 11 – Income Taxes

We use the asset and liability method of accounting for income taxes under which deferred tax assets and liabilities are adjusted to reflect changes in tax rates and laws in the period such changes are enacted resulting in adjustments to the current fiscal year’s provision for income taxes.

TMCC files a consolidated federal income tax return with TFSIC and its subsidiaries. Current and deferred federal income taxes are allocated to TMCC as if it were a separate taxpayer. TMCC’s net operating losses and tax credits are utilized when those losses and credits are used by TFSIC and its subsidiaries including TMCC, in the consolidated federal income tax return. TMCC files either separate or consolidated/combined state income tax returns with TMNA, TFSIC, or subsidiaries of TMCC. State income tax expense is generally recognized as if TMCC and its subsidiaries filed their tax returns on a stand-alone basis. In those states where TMCC and its subsidiaries join in the filing of consolidated or combined income tax returns, TMCC and its subsidiaries are allocated their share of the total income tax expense based on combined allocation/apportionment factors and separate company income or loss. Based on the federal and state tax sharing agreements, TFSIC and TMCC and its subsidiaries pay for their share of the income tax expense and are reimbursed for the benefit of any of their tax losses and credits utilized in the federal and state income tax returns.

The provision for income taxes consisted of the following:

	Years ended March 31,
	2025			2024			2023
Current
Federal	$	706		$	769		$	(1,859	)
State		115			114			(1	)
Foreign		3			12			16
Total		824			895			(1,844	)
Deferred
Federal		(258	)		(376	)		2,100
State		(47	)		(72	)		78
Foreign		3			(5	)		(5	)
Total		(302	)		(453	)		2,173
Provision for income taxes	$	522		$	442		$	329

A reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows:

	Years ended March 31,
	2025	2024	2023
Provision for income taxes at U.S. federal statutory tax rate	21.0%	21.0%	21.0%
State and local taxes (net of federal tax benefit)	3.6%	3.4%	4.2%
Changes in unrecognized tax benefits	0.4%	0.5%	1.3%
Effect of state tax law changes	0.1%	(1.2)%	(0.3)%
State tax refund accrual (net of federal tax benefit)	(0.9)%	(0.6)%	(0.6)%
Other, net 1	(0.8)%	0.1%	(0.4)%
Effective tax rate	23.4%	23.2%	25.2%

1.The amounts in Other, net include tax benefits from foreign tax credits and research and development credits for fiscal 2025, 2024, and 2023, and tax benefits from plug-in vehicle credits and qualified commercial clean vehicle credits for fiscal 2023.

Note 11 – Income Taxes (Continued)

Our net deferred income tax liability consisted of the following deferred tax liabilities and assets:

	March 31,
	2025		2024
Liabilities:
Lease transactions	$	3,181	$	3,493
Voluntary protection dealer commissions		485		439
State taxes, net of federal tax benefit		237		271
Other		101		73
Deferred tax liabilities	$	4,004	$	4,276
Assets:
Provision for credit and residual value losses		503		517
Deferred costs and fees		235		210
Mark-to-market of investments in marketable securities and derivatives		171		186
Lease obligations		38		19
Accrued expenses		26		40
Net operating loss and tax credit carryforwards		15		14
Other		43		19
Deferred tax assets		1,031		1,005
Valuation allowance		-		(1	)
Net deferred tax assets	$	1,031	$	1,004
Net deferred income tax liability 1	$	2,973	$	3,272

1.Balance includes deferred tax assets of $15 million and $18 million at March 31, 2025 and 2024, respectively, attributable to unrealized losses included in accumulated other comprehensive loss. The change in this balance is not included in the total deferred tax expense.

We have no deferred tax assets related to cumulative federal net operating loss carry forwards as of March 31, 2025 and 2024. We have deferred tax assets related to cumulative state net operating loss carry forwards of $15 million and $13 million at March 31, 2025 and 2024, respectively. State net operating loss carryforwards will expire beginning in fiscal 2027.

We have no deferred tax assets related to federal tax credits for vehicles or research and development as of March 31, 2025 and 2024. The deferred tax assets related to federal tax credit for foreign tax were not significant as of March 31, 2025 and 2024, respectively.

The valuation allowance on deferred tax assets was not significant as of March 31, 2025 and 2024, respectively. The determination of the valuation allowance is based on management’s estimate of future taxable income during the respective carryforward periods. Apart from the valuation allowance, we believe that the remaining deferred tax assets will be realized in full. The amount of the deferred tax assets considered realizable could be reduced if management’s estimates change.

We have made an assertion of permanent reinvestment of earnings from our foreign subsidiary; as a result, other than the deemed repatriation tax that is provided pursuant to the Tax Cuts and Jobs Act of 2017, state and local taxes have not been provided for unremitted earnings of our foreign subsidiary. At March 31, 2025 and 2024, these unremitted earnings totaled $329 million and $320 million, respectively. Determination of the amount of the deferred state and local tax liability is not practicable, and accordingly no estimate of the unrecorded deferred state and local tax liability is provided.

Although we do not foresee any events causing repatriation of earnings, possible examples may include but are not limited to parent company capital needs or exiting the business in the foreign country.

Note 11 – Income Taxes (Continued)

We had an income tax payable of $11 million and an income tax receivable of $26 million for our share of the income tax in those states where we filed consolidated or combined returns with TMNA and its subsidiaries at March 31, 2025 and 2024, respectively. Additionally, our federal and state income tax payable or receivable from TMCC affiliated companies, including TFSIC, TFSB, and Toyota Financial Services Securities USA Corporation, was not significant for both March 31, 2025 and 2024.

The guidance for the accounting and reporting for income taxes requires us to assess tax positions in cases where the interpretation of the tax law may be uncertain. The changes in unrecognized tax benefits are as follows:

	March 31,
	2025			2024			2023
Balance at beginning of the year	$	52		$	43		$	22
Increases related to positions taken during the current year		14			3			2
Increases recorded in current year related to positions taken     during prior years		-			11			19
Decreases recorded in current year related to positions taken during prior years		(1	)		-			-
Settlements		-			(3	)		-
Expirations due to lapse of statute		(2	)		(2	)		-
Balance at end of the year	$	63		$	52		$	43

At March 31, 2025, 2024 and 2023 approximately $63 million, $52 million and $43 million of the respective unrecognized tax benefits would, if recognized, have an effect on the effective tax rate. During fiscal 2025, $11 million of the net increase in unrecognized tax benefits had an effect on the effective tax rate. We do not have any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months.

We accrue interest, if applicable, related to uncertain income tax positions in interest expense. Statutory penalties, if applicable, accrued with respect to uncertain income tax positions are recognized as an addition to the income tax liability. For each of fiscal 2025, 2024, and 2023, accrued interest was not significant and no penalties were accrued.

In August 2022, the Inflation Reduction Act (“the Act”) was signed into law. The Act modifies climate and clean energy corporate tax provisions, including amendments to the federal tax credit for plug-in vehicles available under the previous tax law as well as enactment of the qualified commercial clean vehicle credit. We consider the qualified commercial clean vehicle credit to constitute an investment tax credit under Accounting Standards Codification 740 Income Taxes. In the fourth quarter of fiscal 2024, we changed our accounting policy for investment tax credits from the flow-through method to the deferral method. The Act also includes a 15 percent corporate alternative minimum tax based on modified financial statement net income, applying to tax years beginning after December 31, 2022, which was applicable beginning fiscal 2024. We do not expect to pay corporate alternative minimum tax in addition to our regular federal income tax in fiscal 2025.

Tax-related Contingencies

As of March 31, 2025, we remained under IRS examination for fiscal 2018 through fiscal 2025.