v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income Before Income Taxes
(Millions)202220212020
United States$3,861 $3,716 $3,795 
International2,531 3,488 3,000 
Total$6,392 $7,204 $6,795 
Provision for Income Taxes
(Millions)202220212020
Currently payable
Federal$606 $756 $720 
State76 104 123 
International621 597 632 
Deferred
Federal(612)(219)(44)
State(76)(25)(17)
International(2)72 (77)
Total$612 $1,285 $1,337 
Components of Deferred Tax Assets and Liabilities
(Millions)20222021
Deferred tax assets:
Accruals not currently deductible
Employee benefit costs$232 $237 
Product and other claims610 257 
Miscellaneous accruals117 157 
Pension costs7 351 
Stock-based compensation259 249 
Advanced payments173 286 
Net operating/capital loss/state tax credit carryforwards120 120 
Foreign tax credits112 115 
Research and experimentation capitalization 418 — 
Lease liabilities210 219 
Product and other insurance receivables— 48 
Inventory95 68 
Other— 31 
Gross deferred tax assets2,353 2,138 
Valuation allowance(115)(142)
Total deferred tax assets2,238 1,996 
Deferred tax liabilities:
Product and other insurance receivables(3)— 
Accelerated depreciation(586)(665)
Intangible assets(901)(985)
Currency translation(69)— 
Right-of-use asset(210)(222)
Other(69)— 
Total deferred tax liabilities(1,838)(1,872)
Net deferred tax assets$400 $124 
The net deferred tax assets are included as components of Other Assets and Other Liabilities within the Consolidated Balance Sheet. See Note 7 “Supplemental Balance Sheet Information” for further details.
As of December 31, 2022, the Company had tax effected operating losses, capital losses, and tax credit carryovers for federal (approximately $112 million), state (approximately $79 million), and international (approximately $40 million), with all amounts before limitation impacts and valuation allowances. Federal tax attribute carryovers will expire after one to ten years, the state after one to eleven years, and the international after one year to an indefinite carryover period. As of December 31, 2022, the Company has provided $115 million of valuation allowance against certain of these deferred tax assets based on management’s determination that it is more-likely-than-not that the tax benefits related to these assets will not be realized.
Reconciliation of Effective Income Tax Rate
202220212020
Statutory U.S. tax rate21.0 %21.0 %21.0 %
Food Safety divestiture(8.4)— — 
State income taxes - net of federal benefit— 0.9 1.2 
International income taxes - net(0.4)(1.2)(1.2)
Global Intangible Low Taxed Income (GILTI)0.7 0.7 0.8 
Foreign Derived Intangible Income (FDII)(2.3)(3.1)(1.8)
U.S. research and development credit(1.0)(0.7)(1.0)
Reserves for tax contingencies— 0.6 0.5 
Employee share-based payments(0.2)(0.6)(0.5)
All other - net0.2 0.2 0.7 
Effective worldwide tax rate9.6 %17.8 %19.7 %
The effective tax rate for 2022, 2021, and 2020 were 9.6 percent, 17.8 percent, and 19.7 percent, respectively. These reflect a decrease of 8.2 percentage points from 2021 to 2022 and a decrease of 1.9 percentage points from 2020 to 2021. The primary factor that decreased the effective tax rate for 2022 was the tax efficient structure associated with the gain on the split-off of the Food Safety business. The primary factors that decreased the effective tax rate for 2021 in comparison to 2020 were geographical income mix and favorable adjustments in 2021 related to impacts of U.S. international tax provisions.
The 2017 Tax Cuts and Jobs Act (TCJA) involved a transition tax that is payable over eight years beginning in 2018. As of December 31, 2022 and December 31, 2021, 3M reflected $380 million and $508 million, respectively, in long term income taxes payable. As of December 31, 2022 and December 31, 2021, 3M reflected $126 million and $68 million, respectively, payable within one year associated with the transition tax.
The IRS has completed its field examination of the Company’s U.S. federal income tax returns through 2018, but the years 2005 through 2017 have not closed as the Company is in the process of resolving issues identified during those examinations. In addition to the U.S. federal examination, there is also audit activity in several U.S. state and foreign jurisdictions where the Company is subject to ongoing tax examinations and governmental assessments, which could be impacted by evolving political environments in those jurisdictions. As of December 31, 2022, no taxing authority proposed significant adjustments to the Company’s tax positions for which the Company is not adequately reserved.
It is reasonably possible that the amount of unrecognized tax benefits could significantly change within the next 12 months. The Company has ongoing federal, state and international income tax audits in various jurisdictions and evaluates uncertain tax positions that may be challenged by local tax authorities and not fully sustained. These uncertain tax positions are reviewed on an ongoing basis and adjusted in light of facts and circumstances including progression of tax audits, developments in case law and closing statutes of limitation. At this time, the Company is not able to estimate the range by which these potential events could impact 3M’s unrecognized tax benefits within the next 12 months.
The Company recognizes the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows:
Federal, State and Foreign Tax
(Millions)202220212020
Gross UTB Balance at January 1$1,071 $1,113 $1,167 
Additions based on tax positions related to the current year115 91 74 
Additions for tax positions of prior years36 22 106 
Additions related to recent acquisitions— — — 
Reductions for tax positions of prior years(138)(60)(173)
Settlements(118)(57)(8)
Reductions due to lapse of applicable statute of limitations(39)(38)(53)
Gross UTB Balance at December 31$927 $1,071 $1,113 
Net UTB that would impact the effective tax rate at December 31$965 $1,112 $1,145 
The total amount of UTB, if recognized, would affect the effective tax rate by $965 million as of December 31, 2022, $1,112 million as of December 31, 2021, and $1,145 million as of December 31, 2020. The ending net UTB results from adjusting the gross balance for deferred items, interest and penalties, and deductible taxes. The net UTB is included as components of Other Assets, Accrued Income Taxes, and Other Liabilities within the Consolidated Balance Sheet.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized in the consolidated statement of income on a gross basis approximately $1 million of expense, $14 million of expense, and $21 million of expense in 2022, 2021, and 2020, respectively. The amount of interest and penalties recognized may be an expense or benefit due to new or remeasured unrecognized tax benefit accruals. At December 31, 2022, and December 31, 2021, accrued interest and penalties in the consolidated balance sheet on a gross basis were $116 million and $140 million, respectively. Included in these interest and penalty amounts are interest and penalties related to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
As a result of certain employment commitments and capital investments made by 3M, income from certain foreign operations in the following countries is subject to reduced tax rates or, in some cases, is exempt from tax for years through the following: China (2022), Switzerland (2026), Brazil (2029) and Singapore (2032). The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $170 million (30 cents per diluted share) in 2022, $204 million (36 cents per diluted share) in 2021, and $163 million (28 cents per diluted share) in 2020.
As of December 31, 2022, the Company has approximately $16.0 billion of undistributed earnings in its foreign subsidiaries. Approximately $8.0 billion of these earnings are no longer considered permanently reinvested. The incremental tax cost to repatriate these earnings to the US is immaterial. The Company has not provided deferred taxes on approximately $8.0 billion of undistributed earnings from non-U.S. subsidiaries as of December 31, 2022 which are indefinitely reinvested in operations. Because of the multiple avenues by which to repatriate the earnings to minimize tax cost, and because a large portion of these earnings are not liquid, it is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.