v3.25.2
Income Taxes
 12 Months Ended
Mar. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was enacted into law. The IRA includes tax provisions for corporate alternative minimum tax (CAMT) of 15% on adjusted financial statement income of corporations with profits greater than $1.0 billion, effective for taxable years beginning after December 31, 2022, in addition to a tax credit for qualified commercial clean vehicles (QCCV) that applies to vehicles acquired after December 31, 2022. At March 31, 2025, based on proposed guidance and regulations issued to date, the Company does not expect to incur CAMT liability for fiscal year 2025, and QCCV tax credits totaling $362 million were generated and expected to be utilized during fiscal year 2025. The Company accounts for the QCCV tax credits using the deferral method. QCCV tax credits are initially deferred as reductions to the acquisition cost of the related operating lease assets and subsequently recognized over the lease terms as reductions to depreciation expense. The Company will continue to evaluate the effects of IRA as additional guidance and regulations are issued.
The Company’s consolidated income tax expense/(benefit) was computed on a modified separate return basis pursuant to the intercompany tax allocation agreement with the Parent and consisted of the following:
CurrentDeferredTotal
(U.S. dollars in millions)
Year ended March 31, 2025
Federal$612 $(323)$289 
State and local99 (23)76 
Foreign69 (19)50 
Total$780 $(365)$415 
Year ended March 31, 2024
Federal$809 $(545)$264 
State and local198 (78)120 
Foreign17 38 55 
Total$1,024 $(585)$439 
Year ended March 31, 2023
Federal$839 $(575)$264 
State and local35 39 74 
Foreign6 59 65 
Total$880 $(477)$403 
For the fiscal years ended March 31, 2025 and 2024, the allocation of federal current and deferred tax expense reflects primarily the impact of the recognized tax gains on the sale of leased assets, as well as the effect of the mark-to-market gain related to certain finance receivables, offset by the impact of accelerated federal tax depreciation on lease acquisitions. For the fiscal year ended March 31, 2023, the allocation of federal current and deferred tax expense reflects the impact of lower lease acquisitions due to the microchip shortage as well as the effect of a change in tax accounting method for mark-to-market for certain finance receivables.
Income tax expense differs from the expected income taxes by applying the statutory federal corporate rate of 21% to income before income taxes as follows:
Years ended March 31,
202520242023
(U.S. dollars in millions)
Computed “expected” income taxes$334 $323 $324 
Foreign tax rate differential10 12 13 
State and local income taxes, net of federal income tax benefit70 68 64 
Change in estimated state tax rate, net of federal income tax benefit(3)23 (10)
Change in unrecognized tax benefit6 5 4 
Other(2)8 8 
Income tax expense$415 $439 $403 
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
March 31,
20252024
(U.S. dollars in millions)
Deferred tax assets:
State income tax$150 $143 
Receivable allowance107 88 
Accrued postretirement benefits14 14 
State loss carryforwards23 22 
Other assets95 86 
Total gross deferred tax assets389 353 
Less: valuation allowance— — 
Net deferred tax assets389 353 
Deferred tax liabilities:
HCFI leases494 539 
AHFC leases4,777 4,891 
Mark-to-market285 481 
Other135 143 
Total gross deferred tax liabilities5,691 6,054 
Net deferred tax liabilities$5,302 $5,701 
The decrease in the net deferred tax liability is mainly due to the impact of the recognized tax gain on the sale of leased assets, as well as the mark-to-market gain related to certain finance receivables, offset by the impact of accelerated federal tax depreciation on lease acquisitions. The effect of translating HCFI’s net deferred tax liabilities to U.S. dollars upon consolidation resulted in decreases of $33 million, $1 million, and $39 million during the fiscal years ended March 31, 2025, 2024, and 2023, respectively. The translation adjustments have been recognized as a component of other comprehensive income.
Exception to Recognition of Deferred Tax Liabilities
The Company does not provide for income taxes on its share of the undistributed earnings of HCFI, which are intended to be indefinitely reinvested outside the United States. At March 31, 2025, $983 million of accumulated undistributed earnings of HCFI were intended to be so reinvested. If the undistributed earnings as of March 31, 2025 were to be distributed, the tax liability associated with these indefinitely reinvested earnings would be $103 million, inclusive of currency translation adjustments.
Tax Attributes
Included in the Company’s deferred tax assets are net operating loss (NOL) carryforwards with tax benefits resulting from operating losses incurred in various states in which the Company files tax returns in the amounts of $23 million, $22 million, and $23 million at March 31, 2025, 2024, and 2023, respectively. The expiration, if applicable, of these NOL carryforwards varies based on the statutes of each of the applicable states through March 31, 2042.
Valuation Allowance
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during those periods in which those temporary differences and carryforward deferred tax assets become deductible or utilized. The Company considers sources of income, including, where applicable, the reversal of taxable temporary differences and projected future taxable income, in making this assessment. The Company believes it is more likely than not the deferred tax assets of $389 million recognized as of March 31, 2025 will be realized.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Years ended March 31,
202520242023
(U.S. dollars in millions)
Balance, beginning of year$73 $73 $81 
Additions for current year tax positions— — — 
Additions for prior year tax positions— — — 
Reductions for prior year tax positions— — (8)
Settlements— — — 
Reductions related to a lapse in the statute of limitations— — — 
Balance, end of year$73 $73 $73 

Included in the balance of unrecognized tax benefits at March 31, 2025, 2024 and 2023 are $72 million, net of the federal benefit of state taxes, the recognition of which would affect the Company’s effective tax rate in future periods. Although it is reasonably possible that the total amounts of unrecognized tax benefits could change within the next twelve months, the Company does not believe such change would be material. As a result of the above unrecognized tax benefits and various favorable uncertain positions, the Company has recorded a net liability for uncertain tax positions, inclusive of interest and penalties of $114 million and $105 million as of March 31, 2025 and 2024, respectively (Note 12).
The Company recognizes income tax-related interest income, interest expense and penalties as a component of income tax expense. The Company recognized interest expense of $9 million, $6 million and $5 million during the fiscal years ended March 31, 2025, 2024, and 2023, respectively. As of March 31, 2025, 2024 and 2023, the Company’s consolidated balance sheets reflect accrued interest payable of $42 million, $33 million, and $25 million, respectively.
As of March 31, 2025, the Company is subject to examination for U.S. federal returns filed for the taxable years ended March 31, 2014 through 2024, and for various U.S. state returns filed for the taxable years ended March 31, 2008 through 2024. The Company’s Canadian subsidiary, HCFI, is subject to examination for returns filed for the taxable years ended March 31, 2018 through 2024 federally and taxable years ended March 31, 2017 through 2024 provincially. The Company believes appropriate provision has been made for all outstanding issues for all open years.