Verizon Wireless 2009 Annual Report Download - page 68

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Notes to Consolidated Financial Statements continued
NOTE 13
INCOME TAXES
The components of Income before provision for income taxes,
Discontinued operations, Extraordinary item and Cumulative effect of
accounting change are as follows:
(dollars in millions)
Years Ended December 31, 2009 2008 2007
Domestic $ 10,673 $ 14,993 $ 13,561
Foreign 895 921 984
$ 11,568 $ 15,914 $ 14,545
The components of the provision for income taxes from continuing oper-
ations are as follows:
(dollars in millions)
Years Ended December 31, 2009 2008 2007
Current
Federal $ (611) $ 365 $ 2,568
Foreign 73 240 461
State and Local 364 543 545
(174) 1,148 3,574
Deferred
Federal 1,085 2,214 397
Foreign (35) (91) 66
State and Local 340 66 (48)
1,390 2,189 415
Investment tax credits (6) (6) (7)
Total income tax expense $ 1,210 $ 3,331 $ 3,982
The following table shows the principal reasons for the difference
between the effective income tax rate and the statutory federal income
tax rate:
Years Ended December 31, 2009 2008 2007
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income tax rate,
net of federal tax benefits 0.8 2.5 2.2
Distributions from foreign investments – (0.4) 3.9
Equity in earnings from
unconsolidated businesses (1.9) (1.4) (1.5)
Noncontrolling interest (18.7) (12.3) (11.0)
Other, net (4.7) (2.5) (1.2)
Effective income tax rate 10.5% 20.9% 27.4%
The effective income tax rate in 2009 decreased to 10.5% from 20.9% in
2008. The decrease was primarily driven by higher earnings attributable
to the noncontrolling interest, which accounted for an 18.7 percentage
point reduction in the effective tax rate in 2009 compared to a 12.3 per-
centage point reduction in 2008. Included within the (4.7)% ‘Other, net’
above is the impact of lower federal taxes, net of higher state taxes attrib-
utable to prior year adjustments to tax balances that were not material to
the overall effective income tax rate.
The state and local income tax rate, net of federal tax benefits, in 2009
decreased to 0.8% from 2.5% in 2008 due to reductions in unrecognized
tax benefits after statutes of limitations in multiple jurisdictions lapsed
and the impact of earnings attributable to the noncontrolling interest.
The effective income tax rate in 2008 decreased to 20.9% from 27.4% in
2007. The decrease was primarily due to recording $610 million of for-
eign and domestic taxes and expenses in 2007 relating to our share of
Vodafone Omnitel’s distributable earnings. This expense, which increased
the effective tax rate by 3.9 percentage points in 2007 compared to 2008,
was primarily comprised of $300 million of Italian withholding taxes
and $260 million of U.S. federal income taxes. Verizon received net dis-
tributions from Vodafone Omnitel in April 2008 and December 2007 of
approximately $670 million and $2,100 million, respectively.
The state and local income tax rate, net of federal tax benefits, in 2008
increased to 2.5% from 2.2% in 2007. The increase was primarily due to
an increase in earnings at Verizon Wireless, apportioned to states with
higher state income tax rates than the remainder of the Company’s oper-
ations. This increase was partially offset by lower expenses recorded for
unrecognized tax benefits in 2008 compared to 2007. In addition, overall
state income taxes in 2007 was also positively impacted by the lower tax
rate applicable to earnings from its investments in unconsolidated busi-
nesses. Specifically, the Company disposed of its interest in CANTV in the
second quarter of 2007, and as a result, the positive impact of the CANTV
earnings was reduced in 2007 and eliminated in 2008.