Income Taxes
|
Year ended December 31 |
|
2008 |
2007 |
2006 |
| Taxes on income |
|
|
|
| U.S. Federal |
|
|
|
| Current |
$2,879 |
$1,446 |
$2,828 |
| Deferred |
274 |
225 |
200 |
| State and local |
669 |
338 |
581 |
| Total United States |
3,822 |
2,009 |
3,609 |
| International |
|
|
|
| Current |
15,021 |
11,416 |
11,030 |
| Deferred |
183 |
54 |
199 |
| Total International |
15,204 |
11,470 |
11,229 |
| Total taxes on income |
$19,026 |
$13,479 |
$14,838 |
In 2008, before-tax income for U.S. operations, including
related corporate and other charges, was $10,682,
compared with before-tax income of $7,794 and $9,131 in
2007 and 2006, respectively. For international operations,
before-tax income was $32,275, $24,373 and $22,845 in
2008, 2007 and 2006, respectively. U.S. federal income tax
expense was reduced by $198, $132 and $116 in 2008, 2007
and 2006, respectively, for business tax credits.
The reconciliation between the U.S. statutory federal
income tax rate and the company's effective income tax rate is
explained in the table below:
| |
Year ended December 31 |
|
2008 |
2007 |
2006 |
| U.S. statutory federal income tax rate |
35.0% |
35.0% |
35.0% |
| Effect of income taxes from international operations at rates different from the U.S. statutory rate |
10.2 |
8.3 |
10.3 |
| State and local taxes on income, net of U.S. federal income tax benefit |
1.0 |
0.8 |
1.0 |
| Prior-year tax adjustments |
(0.1) |
0.3 |
0.9 |
| Tax credits |
(0.5) |
(0.4) |
(0.4) |
| Effects of enacted changes in tax laws |
(0.6) |
(0.3) |
0.3 |
| Other |
(0.7) |
(1.8) |
(0.7) |
| Effective tax rate |
44.3% |
41.9% |
46.4% |
The company's effective tax rate increased from 41.9 percent
in 2007 to 44.3 percent in 2008. The increase in the
"Effect of income taxes from international operations at rates
different from the U.S. statutory rate" from 8.3 percent in
2007 to 10.2 percent in 2008 was mainly due to a greater
proportion of income being earned in 2008 in tax jurisdictions
with higher tax rates. In addition, the 2007 period
included a relatively low tax rate on the sale of downstream
assets in Europe. The change in "Other" from a negative 1.8
percent to a negative 0.7 percent primarily related to a lower
effective tax rate on the sale of the company's investment in
Dynegy common stock in 2007.
The company records its deferred taxes on a tax-
jurisdiction basis and classifies those net amounts as current
or noncurrent based on the balance sheet classification of the
related assets or liabilities. The reported deferred tax balances
are composed of the following:
|
At December 31 |
|
2008 |
2007 |
| Deferred tax liabilities |
|
|
| Properties, plant and equipment |
$18,271 |
$17,310 |
| Investments and other |
2,225 |
1,837 |
| Total deferred tax liabilities |
20,496 |
19,147 |
| Deferred tax assets |
|
|
| Abandonment/environmental reserves |
(4,338) |
(3,587) |
| Employee benefits |
(3,488) |
(2,148) |
| Tax loss carryforwards |
(1,139) |
(1,603) |
| Deferred credits |
(3,933) |
(1,689) |
| Foreign tax credits |
(4,784) |
(3,138) |
| Inventory |
(260) |
(608) |
| Other accrued liabilities |
(445) |
(477) |
| Miscellaneous |
(1,732) |
(1,528) |
| Total deferred tax assets |
(20,119) |
(14,778) |
| Deferred tax assets valuation allowance |
7,535 |
5,949 |
| Total deferred taxes, net |
$7,912 |
$10,318 |
Deferred tax liabilities at the end of 2008 increased by
approximately $1,300 from year-end 2007. The increase was
primarily related to increased temporary differences for properties,
plant and equipment.
Deferred tax assets increased by approximately $5,300
in 2008. The increase related primarily to deferred credits
recorded for future tax benefits earned from a new field in
Africa ($2,200); increased deferred tax benefits for pension related
obligations ($1,300); and additional foreign tax
credits arising from earnings in high-tax-rate international
jurisdictions ($1,600), which were substantially offset by valuation
allowances.
The overall valuation allowance relates to foreign tax
credit carryforwards,
tax loss carryforwards and temporary
differences for which no benefit is expected to be realized.
Tax loss carryforwards
exist in many international jurisdictions.
Whereas some of these tax loss carryforwards
do not
have an expiration date, others
expire at various times from 2009 through 2032. Foreign tax credit carryforwards of
$4,784 will expire between 2009 and 2018.
At December 31, 2008 and 2007, deferred taxes were
classified in the Consolidated Balance Sheet as follows:
| |
At December 31 |
|
2008 |
2007 |
| Prepaid expenses and other current assets |
$(1,130) |
$(1,234) |
| Deferred charges and other assets |
(2,686) |
(812) |
| Federal and other taxes on income |
189 |
194 |
| Noncurrent deferred income taxes |
11,539 |
12,170 |
| Total deferred income taxes, net |
$7,912 |
$10,318 |
Income taxes are not accrued for unremitted earnings
of international operations that have been or are intended
to be reinvested indefinitely. Undistributed earnings of international
consolidated subsidiaries and affiliates for which
no deferred income tax provision has been made for possible
future remittances totaled $22,428 at December 31, 2008.
This amount represents earnings reinvested as part of the
company's ongoing international business. It is not practicable
to estimate the amount of taxes that might be payable on
the eventual remittance of earnings that are intended to be
reinvested indefinitely. At the end of 2008, deferred income
taxes were recorded for the undistributed earnings of certain
international operations for which the company no longer
intends to indefinitely reinvest the earnings. The company
does not anticipate incurring significant additional taxes on
remittances of earnings that are not indefinitely reinvested.
Uncertain Income Tax Positions
Financial Accounting Standards
Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes — An Interpretation of FASB
Statement No. 109 (FIN 48), provides the accounting guidance
for income tax benefits that are uncertain in nature.
Under FIN 48, a company recognizes a tax benefit in the
financial statements for an uncertain tax position only if
management's assessment is that the position is "more likely
than not" (i.e., a likelihood greater than 50 percent) to be
allowed by the tax jurisdiction based solely on the technical
merits of the position. The term "tax position" in FIN 48
refers to a position in a previously filed tax return or a position
expected to be taken in a future tax return that is
reflected in measuring current or deferred income tax assets
and liabilities for interim or annual periods.
The following table indicates the changes to the company's
unrecognized tax benefits for the year ended December 31,
2008. The term "unrecognized tax benefits" in FIN 48 refers to
the differences between a tax position taken or expected to be
taken in a tax return and the benefit measured and recognized
in the financial statements in accordance with the guidelines of
FIN 48. Interest and penalties are not included.
|
2008 |
2007 |
| Balance at January 1 |
$2,199 |
$2,296 |
| Foreign currency effects |
(1) |
19 |
| Additions based on tax positions taken in current year |
522 |
418 |
| Reductions based on tax positions taken in current year |
(17) |
– |
| Additions/reductions resulting from current year asset acquisitions/sales |
175 |
– |
| Additions for tax positions taken in prior years |
337 |
120 |
| Reductions for tax positions taken in prior years |
(246) |
(225) |
| Settlements with taxing authorities in current year |
(215) |
(255) |
| Reductions as a result of a lapse of the applicable statute of limitations |
(58) |
– |
| Reductions due to tax positions previously expected to be taken but subsequently not taken on prior year tax returns |
– |
(174) |
| Balance at December 31 |
$2,696 |
$2,199 |
Although unrecognized tax benefits for individual tax
positions may increase or decrease during 2009, the company
believes that no change will be individually significant
during 2009. Approximately 85 percent of the $2,696 of
unrecognized tax benefits at December 31, 2008, would have
an impact on the effective tax rate if subsequently recognized.
Tax positions for Chevron and its subsidiaries and
affiliates are subject to income tax audits by many tax jurisdictions
throughout the world. For the company's major tax
jurisdictions, examinations of tax returns for certain prior
tax years had not been completed as of December 31, 2008.
For these jurisdictions, the latest years for which income
tax examinations had been finalized were as follows: United
States — 2003, Nigeria — 1994, Angola — 2001 and Saudi
Arabia — 2003.
On the Consolidated Statement of Income, the company
reports interest and penalties related to liabilities for uncertain
tax positions as "Income tax expense." As of December 31,
2008, accruals of $276 for anticipated interest and penalty
obligations were included on the Consolidated Balance Sheet,
compared with accruals of $198 as of year-end 2007. Income
tax expense associated with interest and penalties was $79 and
$70 in 2008 and 2007, respectively.
| Taxes Other Than on Income |
Year ended December 31 |
|
2008 |
2007 |
2006 |
| United States |
|
|
|
| Excise and similar taxes on products and merchandise |
$4,748 |
$4,992 |
$4,831 |
| Import duties and other levies |
1 |
12 |
32 |
| Property and other miscellaneous taxes |
588 |
491 |
475 |
| Payroll taxes |
204 |
185 |
155 |
| Taxes on production |
431 |
288 |
360 |
| Total United States |
5,972 |
5,968 |
5,853 |
| International |
|
|
|
| Excise and similar taxes on products and merchandise |
5,098 |
5,129 |
4,720 |
| Import duties and other levies |
8,368 |
10,404 |
9,618 |
| Property and other miscellaneous taxes |
1,557 |
528 |
491 |
| Payroll taxes |
106 |
89 |
75 |
| Taxes on production |
202 |
148 |
126 |
| Total International |
15,331 |
16,298 |
15,030 |
| Total taxes other than on income |
$21,303 |
$22,266 |
$20,883 |