Income Taxes

12 Months Ended

Jan. 01, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The source of earnings before income taxes and equity earnings consisted of the following: 

(Amounts in millions)	2021		2020		2019
United States	$	911.4	$	715.9	$	765.3
Foreign	175.5		119.3		156.8
Total	$	1,086.9	$	835.2	$	922.1

The provision (benefit) for income taxes consisted of the following: 

(Amounts in millions)	2021		2020		2019
Current:
Federal	$	152.9	$	136.8	$	110.0
Foreign	48.2		29.9		38.1
State	37.5		30.6		29.5
Total current	238.6		197.3		177.6
Deferred:
Federal	6.1		(10.0)		26.6
Foreign	(0.3)		3.0		1.5
State	2.6		(1.2)		6.1
Total deferred	8.4		(8.2)		34.2
Total income tax provision	$	247.0	$	189.1	$	211.8

The following is a reconciliation of the statutory federal income tax rate to Snap-on’s effective tax rate: 

	2021	2020	2019
Statutory federal income tax rate	21.0%	21.0%	21.0%
Increase (decrease) in tax rate resulting from:
State income taxes, net of federal benefit	2.8	2.9	2.9
Noncontrolling interests	(0.4)	(0.5)	(0.4)
Repatriation of foreign earnings	(0.5)	(0.7)	(0.1)
Change in valuation allowance for deferred tax assets	0.2	0.5	0.4
Adjustments to tax accruals and reserves	0.3	(0.5)	(0.4)
Foreign rate differences	0.5	0.5	0.4
Excess tax benefits related to equity compensation	(1.0)	(0.5)	(0.5)
Other	(0.2)	(0.1)	(0.3)
Effective tax rate	22.7%	22.6%	23.0%

Snap-on’s effective income tax rate on earnings attributable to Snap-on Incorporated was 23.2% in 2021, 23.2% in 2020, and 23.4% in 2019.

Temporary differences that give rise to the net deferred income tax liability as of 2021, 2020 and 2019 year end are as follows:

(Amounts in millions)	2021		2020		2019
Deferred income tax assets (liabilities):
Inventories	$	37.5	$	41.4	$	34.7
Accruals not currently deductible	77.6		75.1		62.4
Tax credit carryforward	1.2		2.4		2.0
Employee benefits	6.4		32.4		41.3
Net operating losses	35.0		37.1		40.4
Depreciation and amortization	(213.2)		(192.0)		(178.9)
Valuation allowance	(24.5)		(26.7)		(27.8)
Equity-based compensation	13.1		14.3		16.2
Undistributed non-U.S. earnings	(4.4)		(5.4)		(6.6)
Other	(1.9)		1.3		(0.7)
Net deferred income tax liability	$	(73.2)	$	(20.1)	$	(17.0)

As of 2021 year end, Snap-on had tax net operating loss carryforwards totaling $160.5 million as follows:

(Amounts in millions)	State		Federal		Foreign		Total
Year of expiration:
2022-2026	$	0.3	$	—	$	46.7	$	47.0
2027-2031	36.3		—		15.5		51.8
2032-2036	—		—		—		—
2037-2041	—		—		10.8		10.8
2042-2046	—		—		17.6		17.6
Indefinite	—		—		33.3		33.3
Total net operating loss carryforwards	$	36.6	$	—	$	123.9	$	160.5

A valuation allowance totaling $24.5 million, $26.7 million and $27.8 million as of 2021, 2020 and 2019 year end, respectively, has been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be realized. Realization of the net deferred income tax assets is dependent on generating sufficient taxable income prior to their expiration. Although realization is not assured, management believes it is more-likely-than-not that the net deferred income tax assets will be realized. The amount of the net deferred income tax assets considered realizable, however, could change in the near term if estimates of future taxable income during the carryforward period fluctuate. The expected realization of tax benefits associated with the February 26, 2021 acquired loss carryforwards will be recorded in the first quarter of 2022, with the final purchase accounting valuation for Dealer-FX. See Note 3 for more information on acquisitions.

The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2021, 2020 and 2019:

(Amounts in millions)	2021		2020		2019
Unrecognized tax benefits at beginning of year	$	9.1	$	10.3	$	11.1
Gross increases – tax positions in prior periods	0.4		0.4		—
Gross decreases – tax positions in prior periods	(0.4)		—		(0.6)
Gross increases – tax positions in the current period	0.4		0.4		0.5
Settlements with taxing authorities	—		(1.4)		—
Lapsing of statutes of limitations	(0.6)		(0.6)		(0.7)
Unrecognized tax benefits at end of year	$	8.9	$	9.1	$	10.3

The unrecognized tax benefits of $8.9 million, $9.1 million and $10.3 million as of 2021, 2020 and 2019 year end, respectively, would impact the effective income tax rate if recognized. As of January 1, 2022, unrecognized tax benefits of $1.3 million and $7.6 million were included in “Deferred income tax assets” and “Other long-term liabilities,” respectively, on the accompanying Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. As of 2021, 2020 and 2019 year end, the company had provided for $1.4 million, $1.1 million and $1.1 million, respectively, of accrued interest and penalties related to unrecognized tax benefits. As of January 1, 2022, $1.4 million of accrued interest and penalties were included in “Other long-term liabilities” on the accompanying Consolidated Balance Sheets.

Snap-on and its subsidiaries file income tax returns in the United States and in various state, local and foreign jurisdictions. It is reasonably possible that certain unrecognized tax benefits may either be settled with taxing authorities or the statutes of limitations for such items may lapse within the next 12 months, causing Snap-on’s gross unrecognized tax benefits to decrease by a range of zero to $4.2 million. Over the next 12 months, Snap-on anticipates taking certain tax positions on various tax returns for which the related tax benefit does not meet the recognition threshold. Accordingly, Snap-on’s gross unrecognized tax benefits may increase by a range of zero to $0.8 million over the next 12 months for uncertain tax positions expected to be taken in future tax filings.

With few exceptions, Snap-on is no longer subject to U.S. federal and state/local income tax examinations by tax authorities for years prior to 2017, and Snap-on is no longer subject to non-U.S. income tax examinations by tax authorities for years prior to 2012.

In general, it is Snap-on’s practice and intention to reinvest certain earnings of its non-U.S. subsidiaries in those operations. As of 2021 year end, the company has not made a provision for incremental U.S. income taxes or additional foreign withholding taxes on approximately $358.7 million of such undistributed earnings that is deemed indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable. As a result of the Tax Act, which subjected the majority of the company’s undistributed foreign earnings to taxation for the 2017 tax year, the company can now repatriate non-U.S. cash in a tax efficient manner. Accordingly, the company has reversed its prior assertion concerning the indefinite reinvestment of the majority of its undistributed foreign earnings and has recorded a deferred tax liability of $4.4 million for the incremental tax costs associated with the future potential repatriation of such earnings.