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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The components of the provision for income taxes for the years ended December 31 follow:
202420232022
Current:
Federal
$207 $281 $72 
State
120 109 82 
Deferred:
Federal
55 72 164 
State
32 29 17 
Uncertain tax positions and interest and other(26)(31)9 
Provision for income taxes$388 $460 $344 
The reconciliations of the statutory federal income tax rate to our effective tax rate for the years ended December 31 follow:
202420232022
Federal statutory rate21.0 %21.0 %21.0 %
State income taxes, net of federal benefit4.8 4.4 4.6 
Non-deductible expenses0.8 1.2 1.1 
Uncertain tax position taxes and interest(0.3)(0.8)0.2 
Investment tax credits(9.9)(4.0)(7.6)
Other, net(0.4)(0.8)(0.5)
Effective income tax rate16.0 %21.0 %18.8 %
During 2024, we acquired non-controlling interests in limited liability companies established to own renewable energy assets that qualified for investment tax credits under Section 48 of the Internal Revenue Code. We account for these investments under the equity method of accounting utilizing the HLBV method and recognize our share of income or loss and other reductions in the value of our investment in loss from unconsolidated equity method investments within our consolidated statements of income. For further discussion regarding our equity method accounting, see Note 3, Business Acquisitions, Investments and Restructuring Charges. Our 2024 tax provision reflects a benefit of $222 million due to the tax credits related to these investments.
We also made qualified investments in renewable natural gas projects and commercial electric vehicles during 2024 which, due to tax credits, reduced our tax provision by approximately $18 million.
Our 2023 tax provision was reduced by $87 million related to the tax credits from our non-controlling interests in limited liability companies established to own renewable energy assets.
In addition, during 2023 we resolved IRS examinations for our 2014 to 2018 tax years, that in the aggregate, reduced our tax provision by approximately $21 million.
Our 2022 tax provision was reduced by $139 million related to the tax credits from our non-controlling interests in limited liability companies established to own renewable energy assets.
During 2022, the Inflation Reduction Act (IRA) was signed into law. We continue to evaluate the IRA and additional regulations as they are released by the U.S. Treasury.
With respect to various energy credits in the IRA, we expect to benefit in subsequent years for credits related to commercial electric vehicles, carbon capture and renewable natural gas. Additional benefits may be identified as subsequent guidance is released by the U.S. Treasury and/or additional climate technologies are identified or advanced in future years.
We made income tax payments (net of refunds) of $313 million, $343 million and $185 million for 2024, 2023, and 2022, respectively. Income taxes paid in 2024, 2023, and 2022 reflect benefits from tax credits from our continuing investments in qualified renewable energy projects.
The components of the net deferred income tax asset and liability as of December 31 follow:
20242023
Deferred tax liabilities relating to:
Differences between book and tax basis of property and equipment
$(1,258)$(1,229)
Difference between book and tax basis of intangible assets
(637)(583)
Operating right-of-use lease assets
(57)(59)
Basis difference due to redemption of partnership interests
(82)(82)
Total deferred tax liabilities
$(2,034)$(1,953)
Deferred tax assets relating to:
Environmental reserves
$218 $236 
Accruals not currently deductible
105 105 
Net operating loss carryforwards
61 75 
Difference between book and tax basis of other assets
48 14 
Operating right-of-use lease liabilities
59 60 
Other
15 17 
Total deferred tax assets
506 507 
Valuation allowance
(51)(49)
Net deferred tax asset
455 458 
Net overall deferred tax liability$(1,579)$(1,495)
Changes in the deferred tax valuation allowance for the years ended December 31 follow:
202420232022
Valuation allowance, beginning of year$49 $44 $44 
Additions charged to provision for income taxes6 3 2 
Deferred tax assets realized or written-off— — (6)
Other, net(4)2 4 
Valuation allowance, end of year$51 $49 $44 
We have deferred tax assets related to state net operating loss carryforwards. We provide a partial valuation allowance due to uncertainty surrounding the future utilization of these carryforwards in the taxing jurisdictions where the loss carryforwards exist. When determining the need for a valuation allowance, we consider all positive and negative evidence, including recent financial results, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. The weight given to the positive and negative evidence is commensurate with the extent such evidence can be objectively verified. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized.
The majority of our valuation allowance is associated with state loss carryforwards. The realization of our deferred tax asset for state loss carryforwards ultimately depends upon the existence of sufficient taxable income in the appropriate state taxing jurisdictions in future periods. We continue to regularly monitor both positive and negative evidence in determining the ongoing need for a valuation allowance.
We have deferred tax assets related to state net operating loss carryforwards with an estimated tax effect of $50 million available as of December 31, 2024. These state net operating loss carryforwards expire at various times between 2025 and 2044. We believe that it is more likely than not that the benefit from some of our state net operating loss carryforwards will not be realized due to limitations on these loss carryforwards in certain states. In recognition of this risk, as of December 31, 2024, we have provided a valuation allowance of $45 million.
We are subject to income tax in the United States, as well as income tax in multiple state and foreign jurisdictions. Income tax in our foreign jurisdictions is not material for all years presented. Our compliance with income tax rules and regulations is periodically audited by tax authorities. These authorities may challenge the positions taken in our tax filings. Thus, to provide for certain potential tax exposures, we maintain liabilities for uncertain tax positions for our estimate of the final outcome of the examinations. Our federal statute of limitations applicable to our federal tax returns is closed through 2020. The federal statute of limitations applicable to an acquired subsidiary is closed through 2019. In addition, we are currently under state examination or administrative review in various jurisdictions for tax years 2012 through 2023.
The following table summarizes the activity in our gross unrecognized tax benefits for the years ended December 31:
202420232022
Balance at beginning of year$42 $111 $102 
Additions for tax positions of current year— 1 7 
Additions for tax positions of prior years1 3 2 
Reductions for tax positions of prior years(5)(7)— 
Reductions for tax positions resulting from lapse of statute of limitations(1)— — 
Settlements(9)(66)— 
Balance at end of year$28 $42 $111 
Included in our gross unrecognized tax benefits as of December 31, 2024, 2023 and 2022 are $22 million, $33 million and $97 million, respectively, of unrecognized tax benefits (net of the federal benefit) that, if recognized, would affect our effective income tax rate in future periods. However, we are unable to estimate the resolution of these matters over the next 12 months.
During 2023, we settled our 2014-2018 tax years with the Internal Revenue Service. These settlements reduced our gross unrecognized tax benefits by $66 million.
We recognize interest and penalties as incurred within the provision for income taxes in our consolidated statements of income. Related to the unrecognized tax benefits previously noted, we recorded a reduction to interest expense of $6 million during 2024 and, in total as of December 31, 2024, have recognized a liability for penalties of $1 million and interest of $5 million. During 2023, we recorded interest expense of $1 million and, in total as of December 31, 2023, had recognized a liability for interest of $14 million. During 2022, we recorded interest expense of $1 million and, in total as of December 31, 2022, had recognized a liability for interest of $15 million.
We believe the recorded liabilities for uncertain tax positions are adequate. However, a significant assessment against us in excess of the liabilities recorded could have a material adverse effect on our consolidated financial position, results of operations and cash flows.