SunCoke Energy Inc
For the period ended Dec 31, 2023. Filed Feb 22, 2024.
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FY2023 · Filed Feb 22, 2024
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4. Income Taxes
- Income Taxes
The components of income before income tax expense are as follows:
| Years Ended December 31, | |||
|---|---|---|---|
| 2023 | 2022 | 2021 | |
| (Dollars in millions) | |||
| Domestic | $88.8 | $107.1 | $50.4 |
| Foreign | 9.0 | 14.6 | 16.7 |
| Total | $97.8 | $121.7 | $67.1 |
Income tax expense consisted of the following:
| Years Ended December 31, | |||
|---|---|---|---|
| 2023 | 2022 | 2021 | |
| (Dollars in millions) | |||
| Current tax expense: | |||
| U.S. federal | $7.9 | $4.3 | $0.8 |
| State | 4.7 | 5.4 | 3.7 |
| Foreign | 3.1 | 4.8 | 4.5 |
| Total current tax expense | 15.7 | 14.5 | 9.0 |
| Deferred tax expense (benefit): | |||
| U.S. federal | 19.7 | 8.6 | 11.0 |
| State | (1.1) | (6.3) | (1.7) |
| Total deferred tax expense | 18.6 | 2.3 | 9.3 |
| Total | $34.3 | $16.8 | $18.3 |
The reconciliation of income tax expense at the U.S. statutory rate to income tax expense is as follows:
| Years Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 · 2022 · 2021 | ||||||
| (Dollars in millions) | ||||||
| Income tax expense at U.S. statutory rate | $20.5 | 21.0% | $25.6 | 21.0% | $14.1 | 21.0% |
| Increase (reduction) in income taxes resulting from: | ||||||
| Income attributable to noncontrolling interests in partnerships(1) | (1.3) | (1.3)% | (0.9) | (0.7)% | (1.1) | (1.7)% |
| State and other income taxes, net of federal income tax effects(2) | 3.0 | 3.1% | (0.9) | (0.7)% | 1.6 | 2.4% |
| Foreign income taxes(3) | 3.1 | 3.1% | 4.8 | 4.0% | — | —% |
| R&D tax credit(4) | (0.7) | (0.7)% | (4.0) | (3.4)% | — | —% |
| Non-deductible equity compensation | 2.8 | 2.9% | 3.0 | 2.5% | 3.4 | 4.9% |
| Return to provision adjustments | (1.8) | (1.8)% | (0.1) | (0.1)% | (0.1) | (0.1)% |
| Change in valuation allowance(3) | 8.8 | 9.0% | (11.0) | (9.0)% | 0.5 | 0.8% |
| Other | (0.1) | (0.2)% | 0.3 | 0.2% | (0.1) | (0.1)% |
| Income tax expense at effective tax rate | $34.3 | 35.1% | $16.8 | 13.8% | $18.3 | 27.2% |
(1)No income tax expense is reflected in the Consolidated Statements of Income for income attributable to noncontrolling interests in our Indiana Harbor cokemaking facility.
(2)State tax rates in 2023 remained in line with the prior year. Lower apportioned state tax rates required the revaluation of certain deferred tax liabilities and resulted in deferred tax benefits of $4.9 million and $1.3 million recorded during 2022 and 2021, respectively. The decrease in apportioned state tax rates in 2022 was partly driven by the dissolution of SunCoke Energy Partners Finance Corp.
(3)During 2023, the Company established an $8.4 million valuation allowance, which was a portion of an $11.3 million valuation allowance that was released during 2022 on deferred tax assets attributable to existing foreign tax credit carryforwards. The release of the valuation allowance during 2022 was a result of new regulations published in 2022 by the U.S. Treasury (2022 Foreign Tax Credit (“FTC”) final regulations) that made foreign taxes paid in future years to certain countries, including Brazil, no longer creditable in the U.S. After tax planning in 2022, the Company expected to be able to utilize its existing foreign tax credits carried forward from prior years.
During 2023, Brazil enacted new legislation that aligned the Brazil transfer pricing law with the 2022 OECD Guidelines. As a result, the Company has determined that Brazil taxes paid or accrued in 2024 and forward will become creditable under the 2022 final FTC regulations. Due to the change in the Brazilian tax law, the FTCs that are projected to be created will cause $8.4 million of the foreign tax credit carryforward from prior years to not be utilized, resulting in the establishment of the valuation allowance during 2023. Also, during 2023, the IRS issued
Notice 2023-55 and 2023-80 that generally allow taxpayers to defer the application of the of the 2022 FTC final regulations until further guidance is issued. Foreign income taxes paid in 2023 reflected the absence of the generation of foreign tax credits for taxes paid in Brazil due to the Company’s election not to defer the application of the 2022 FTC final regulations allowed under the notices.
(4)SunCoke conducted an analysis with respect to the Company’s research and development activities, which resulted in a current tax benefit of $0.7 million and a deferred tax benefit of $4.0 million during 2023 and 2022, respectively.
The tax effects of temporary differences that comprise the net deferred income tax liability from operations are as follows:
| December 31, | ||
|---|---|---|
| 2023 | 2022 | |
| (Dollars in millions) | ||
| Deferred tax assets: | ||
| Retirement benefit liabilities | $4.1 | $4.2 |
| Black lung benefit liabilities | 13.2 | 13.2 |
| Share-based compensation | 0.6 | 2.0 |
| Federal tax credit carryforward(1) | — | 8.7 |
| Foreign tax credit carryforward(2) | 8.4 | 9.2 |
| State net operating loss carryforward, net of federal income tax effects(3) | 13.2 | 12.9 |
| Other liabilities not yet deductible | 11.4 | 12.9 |
| Total deferred tax assets | 50.9 | 63.1 |
| Less: valuation allowance(4) | (17.9) | (9.2) |
| Deferred tax asset, net | 33.0 | 53.9 |
| Deferred tax liabilities: | ||
| Properties, plants and equipment | (158.3) | (155.4) |
| Investment in partnerships | (65.1) | (70.8) |
| Total deferred tax liabilities | (223.4) | (226.2) |
| Net deferred tax liability | $(190.4) | $(172.3) |
(1)Federal tax credit carryforward expires in 2034 through 2043.
(2)Foreign tax credit carryforward expires in 2028 through 2032.
(3)State net operating loss carryforward, net of federal income tax effects expires in 2033 through 2044.
(4)Primarily related to state net operating loss carryforwards and valuation allowance attributable to existing foreign tax credit carryforwards.
The Company's consolidated federal income tax returns have been examined by the IRS for all years through the year ended December 31, 2014. Due to the federal tax credit carryforward going back to 2015, SunCoke is currently open to examination by the IRS for tax years ended December 31, 2015 and forward.
State and foreign income tax returns are generally subject to examination for a period ofthree tofive years after the filing of the respective returns. The state impact of any amended federal returns remains subject to examination by various states for a period of up toone year after formal notification of such amendments to the states.
Uncertain Tax Positions
During 2023 and 2022, the company recorded expense related to uncertain current and prior year tax positions of $0.1 million and $0.3 million, respectively. At December 31, 2023 and 2022, the balances of unrecognized tax benefits at were $0.4 million and $0.3 million, respectively, that, if recognized, will reduce the effective tax rate on income from continuing operations.
There wereno uncertain tax positions recorded at December 31, 2021, and there wereno associated interest or penalties recognized for the years ended December 31, 2023, 2022 or 2021. The Company expects that nominal unrecognized tax benefits pertaining to income tax matters will be required in the next twelve months.
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