Note 13-Income Taxes

 

The provision for income taxes consisted of:

 

(In millions)

 

  

   

 

 

Year Ended June 30

2001

 

2002

 

2003

 

 

 

 

 

 

Current taxes:

   

  

     

 

   

U.S. and state

$     3,243

  

$    3,644

 

$    3,861

International

514

  

575

 

808

Current taxes

3,757

  

4,219

 

4,669

Deferred taxes

47

  

(535)

 

64

Provision for income taxes

$    3,804

  

$    3,684

 

$    4,733

 

U.S. and international components of income before income taxes were:

 

(In millions)

 

  

 

  

 

Year Ended June 30

2001

 

2002

 

2003

 

 

 

 

 

 

U.S.

$        9,189

  

$    8,920

 

$      11,346

International

2,336

  

2,593

  

3,380

Income before income taxes

$   11,525

  

$   11,513

  

$   14,726

 

In 2001, the effective tax rate was 33.0% and included the effect of a 3.1% reduction from the U.S. statutory rate for tax credits and a 1.1% increase for other items. The effective tax rate in 2002 was 32.0% and included the effect of a 2.4% reduction from the U.S. statutory rate for the extraterritorial income exclusion tax benefit and a 0.6% reduction for other items. The effective tax rate in 2003 was 32.1% and included the effect of a one-time benefit of $126 million from the reversal of previously accrued taxes related to a favorable tax court ruling and a 2.0% reduction from the U.S. statutory rate for other items. Excluding this reversal, the effective tax rate in 2003 would have been 33.0%.

 


 

Deferred income taxes were:

 

(In millions)

   

 

   

June 30

2002

 

2003

 

 

 

 

 

 

Deferred income tax assets:

     

 

     

Revenue Items

$     2,261

 

$      2,556

Expense items

945

 

1,048

Impaired investments

2,016

 

1,525

Deferred income tax assets

$     5,222

 

$      5,129

Deferred income tax liabilities:

 

 

 

Unrealized gain on investments

$        (887)

 

$      (1,584)

International earnings

(1,818)

 

(1,809)

Other

(803)

 

(961)

Deferred income tax liabilities

$   (3,508)

 

$     (4,354)

 

We have not provided for U.S. deferred income taxes or foreign withholding taxes on $1.64 billion of our undistributed earnings for certain non-U.S. subsidiaries, all of which relate to fiscal 2002 and 2003 earnings, because these earnings are intended to be reinvested indefinitely.

September 15, 2000, the U.S. Tax Court issued an adverse ruling with respect to our claim that the Internal Revenue Service (IRS) incorrectly assessed taxes for 1990 and 1991. On December 3, 2002, the Ninth Circuit Court of Appeals substantially reversed the U.S. Tax Court decision. Income taxes, except for one issue remanded to the U.S. Tax Court by the Ninth Circuit Court of Appeals for additional consideration, have been settled with the IRS for all years through 1996. The IRS is examining our 1997 through 1999 U.S. income tax returns. Management believes any adjustments which may be required will not be material to the financial statements. Income taxes paid were $1.3 billion in 2001, $1.9 billion in 2002, and $2.8 billion in 2003.