INCOME TAXES |
9 Months Ended |
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Sep. 27, 2024 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | INCOME TAXES The Company recorded income taxes of $530 million (15.7% effective tax rate) and $454 million (12.8% effective tax rate) during the three months ended September 27, 2024 and September 29, 2023, respectively. The Company recorded income taxes of $1,844 million (17.9% effective tax rate) and $1,753 million (16.7% effective tax rate) during the nine months ended September 27, 2024 and September 29, 2023, respectively.
The Company’s effective tax rates for the three and nine months ended September 27, 2024 and September 29, 2023 vary from the statutory U.S. federal tax rate of 21.0% primarily due to the tax impact of significant operating and nonoperating items, as described in Note 12, along with the tax benefits of having significant earnings generated outside of the United States and significant earnings generated in investments accounted for under the equity method, both of which are generally taxed at rates lower than the statutory U.S. federal tax rate.
The Company’s effective tax rates for the three and nine months ended September 27, 2024 included $45 million of net tax benefits and $15 million of net tax expense, respectively, related to various discrete tax items, including the resolution of certain foreign tax matters, return to provision adjustments and the net tax impact of agreed-upon audit issues.
The Company’s effective tax rates for the three and nine months ended September 29, 2023 included $186 million and $311 million, respectively, of net tax benefits related to various discrete tax items, including return to provision adjustments and the net tax impact of agreed-upon audit issues. The Company’s effective tax rate for the nine months ended September 29, 2023 also included a tax benefit of $90 million related to a change in tax law in a certain foreign jurisdiction.
On November 18, 2020, the Tax Court issued the Opinion regarding the Company’s 2015 litigation with the IRS involving transfer pricing tax adjustments in which it predominantly sided with the IRS. On November 8, 2023, the Tax Court issued a supplemental opinion, siding with the IRS in concluding both that the blocked-income regulations apply to the Company’s operations and that the Tax Court opinion in 3M Co. & Subs. v. Commissioner (February 9, 2023) controlled as to the validity of those regulations. The Company strongly disagrees with the Opinions and intends to vigorously defend its position. Refer to Note 9.
During the nine months ended September 27, 2024, the Company invested $114 million in limited partnerships that receive tax credits and other tax benefits by constructing, owning and operating alternative energy generation facilities. Investments of this nature are included in the line item in our consolidated balance sheet. The Company generates a return through the receipt of tax credits, other tax benefits and cash distributions. The Company has made an election to apply the proportional amortization method (“PAM”) of accounting to these investments. In accordance with PAM accounting, the Company amortizes the cost of its investments in the line item income taxes in our consolidated statement of income based on the proportion of the income tax benefits received during the period to the total income tax benefits expected to be received over the life of the investments. The income tax credits and other income tax benefits earned reduce our income tax payments and are recorded in the line item net change in operating assets and liabilities in our consolidated statement of cash flows. During the three and nine months ended September 27, 2024, the Company received tax credits and other income tax benefits of $74 million and recognized amortization expense of $70 million related to these investments. The amount of non-income
tax-related activity and other returns related to these investments was not material during the three and nine months ended September 27, 2024. As of September 27, 2024, the carrying value of these investments was $44 million. The Company expects to fulfill $135 million of unfunded commitments related to these investments by December 31, 2024.
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