Income Taxes |
3 Months Ended |
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Jun. 30, 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 a 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 June 30, 2025, based on proposed guidance and regulations issued to date, the Company does not expect to incur CAMT liability for fiscal year 2026 and expects to generate and utilize QCCV tax credits during fiscal year 2026 based on the tax laws as of the reporting date. 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. QCCV tax credits totaling $73 million were deferred during the three months ended June 30, 2025. The Company will continue to evaluate the effects of IRA as additional guidance and regulations are issued. During fiscal years 2024 and 2025, several countries, including Japan and Canada, enacted tax laws to adopt various aspects of the Organization for Economic Cooperation and Development (OECD) Global Anti-Base Erosion Model Rules (GloBE Rules). The GloBE Rules are designed to ensure large multinational enterprises (MNEs) pay a minimum level of tax (“Minimum Tax”) on income in each of the jurisdictions in which they operate. These rules generally apply to MNE groups with annual revenue of €750 million or more. The Company is in the scope of the GloBE Rules, effective as of April 1, 2024, as a result of our affiliation with HMC. On June 20, 2024, Canada, where the Company’s Canadian subsidiary HCFI is incorporated, enacted the Global Minimum Tax Act, implementing the Income Inclusion Rule and Qualified Domestic Minimum Top-up tax under the GloBE Rules, effective from April 1, 2024. Since HCFI is expected to have an effective tax rate that exceeds the 15% minimum rate, the Company has no related current tax expense associated with the Minimum Tax as of June 30, 2025. To date, the U.S., where we have the majority of our operations and conduct business, has not enacted laws to adopt the GloBE Rules. Based on preliminary analysis, we do not expect a material tax impact as a result of the GloBE Rules. The Company will continue to monitor legislative developments and changes in business for potential impacts of the GloBE Rules on future periods. The Company’s effective tax rate was 26.8% and 31.0% for the three months ended June 30, 2025 and 2024, respectively. The decrease in the effective tax rate was primarily attributed to the remeasurement of deferred taxes due to state tax law changes. The Company's effective tax rate for the three months ended June 30, 2025 differs from the U.S. federal statutory tax rate primarily as a result of U.S. state taxes. 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 June 30, 2025, $1.0 billion of accumulated undistributed earnings of HCFI were intended to be so reinvested. If the undistributed earnings as of June 30, 2025 were to be distributed, the tax liability associated with these earnings would be $109 million, inclusive of currency translation adjustments. As of June 30, 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 federal and provincial returns filed for the taxable years ended March 31, 2018 through 2024. The Company believes appropriate provision has been made for all outstanding issues for all open years. The financial statements as of June 30, 2025 do not reflect the impact of the One Big Beautiful Bill Act of 2025 (OBBBA), which was signed into law after June 30, 2025.
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