Verizon Wireless 2012 Annual Report Download - page 77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
75
NOTE 12
TAXES
The components of income before provision for income taxes are as
follows:
(dollars in millions)
Years Ended December 31, 2012 2011 2010
Domestic $ 9,316 $ 9,724 $ 11,921
Foreign 581 759 763
Total $ 9,897 $ 10,483 $ 12,684
The components of the provision (benefit) for income taxes are as follows:
(dollars in millions)
Years Ended December 31, 2012 2011 2010
Current
Federal $ 223 $ 193 $ (705)
Foreign (45) 25 (19)
State and Local 114 290 (42)
Total 292 508 (766)
Deferred
Federal (553) 276 2,945
Foreign 10 (38) (24)
State and Local (403) (455) 316
Total (946) (217) 3,237
Investment tax credits (6) (6) (4)
Total income tax provision (benefit) $ (660) $ 285 $ 2,467
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, 2012 2011 2010
Statutory federal income tax rate 35.0 % 35.0 % 35.0 %
State and local income tax rate, net of
federal tax benefits (1.9) (1.0) 1.4
Affordable housing credit (1.9) (1.8) (1.3)
Employee benefits including ESOP
dividend (1.1) (1.4) (1.2)
Medicare Part D subsidy charge – – 6.9
Equity in earnings from unconsolidated
businesses (1.4) (1.9) (1.6)
Noncontrolling interest (33.7) (23.0) (19.5)
Other, net (1.7) (3.2) (0.3)
Effective income tax rate (6.7)% 2.7 % 19.4 %
The effective income tax rate for 2012 was (6.7)% compared to 2.7% for
2011. The negative effective income tax rate for 2012 and the decrease
in the provision for income taxes during 2012 compared to 2011 was
primarily due to lower income before income taxes as a result of higher
severance, pension, and benefit charges as well as early debt redemption
costs recorded in the current year.
The effective income tax rate in 2011 decreased to 2.7% from 19.4% in
2010. This decrease was primarily driven by lower income before provi-
sion for income taxes as a result of higher pension and benefit charges
recorded in 2011 as well as tax benefits from state valuation allowance
reversals in 2011. The decrease was also due to a one-time, non-cash
income tax charge of $1.0 billion recorded during the three months ended
March 31, 2010 as a result of the enactment of the Patient Protection and
Affordable Care Act and the Health Care and Education Reconciliation
Act of 2010, both of which became law in March 2010 (collectively the
Health Care Act). Under the Health Care Act, beginning in 2013, Verizon
and other companies that receive a subsidy under Medicare Part D to
provide retiree prescription drug coverage will no longer receive a fed-
eral income tax deduction for the expenses incurred in connection with
providing the subsidized coverage to the extent of the subsidy received.
Because future anticipated retiree prescription drug plan liabilities and
related subsidies are already reflected in Verizon’s financial statements,
this change in law required Verizon to reduce the value of the related tax
benefits recognized in its financial statements in the period during which
the Health Care Act was enacted.
The amounts of cash taxes paid are as follows:
(dollars in millions)
Years Ended December 31, 2012 2011 2010
Income taxes, net of amounts refunded $ 351 $ 762 $ 430
Employment taxes 1,308 1,328 1,372
Property and other taxes 1,727 1,883 1,963
Total $ 3,386 $ 3,973 $ 3,765