3M 2014 Annual Report Download - page 76

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70
five to 10 years, and the majority of international after five years with the remaining international expiring in one year or
with an indefinite carryover period. The tax attributes being carried over arise as certain jurisdictions may have tax losses
or may have inabilities to utilize certain losses without the same type of taxable income. As of December 31, 2014, the
Company has provided $22 million of valuation allowance against certain of these deferred tax assets based on
management's determination that it is more-likely-than-not that the tax benefits related to these assets will not be realized.
Reconciliation of Effective Income Tax Rate
2014 2013
2012
Statutory U.S. tax rate
35.0
%
35.0
%
35.0
%
State income taxes - net of federal benefit
0.9
0.9
0.9
International income taxes - net
(5.8)
(6.3)
(4.2)
U.S. research and development credit
(0.4)
(0.7)
-
Reserves for tax contingencies
0.6
1.2
(1.9)
Domestic Manufacturer's deduction
(1.3)
(1.6)
(1.2)
All other - net
(0.1)
(0.4)
0.4
Effective worldwide tax rate
28.9
%
28.1
%
29.0
%
The effective tax rate for 2014 was 28.9 percent, compared to 28.1 percent in 2013, an increase of 0.8 percentage points,
impacted by many factors. Factors which increased the Company’s effective tax rate included a one-time international tax
impact related to the establishment of the supply chain center of expertise in Europe, decreased U.S. research and
development credit in 2014 compared to 2013 due to two years inclusion as a result of the reinstatement in 2013,
decreased domestic manufacturer’s deduction, and other items. Combined, these factors increased the Company’s
effective tax rate by 1.6 percentage points. This increase was partially offset by a 0.8 percentage point decrease, which
related to both lower 3M income tax reserves for 2014 when compared to 2013 and international taxes as a result of
changes to the geographic mix of income before taxes.
The effective tax rate for 2013 was 28.1 percent, compared to 29.0 percent in 2012, a decrease of 0.9 percentage points,
impacted by many factors. Factors that decreased the Company’s effective tax rate included international taxes as a
result of changes to the geographic mix of income before taxes, the reinstatement of the U.S. research and development
credit in 2013, an increase in the domestic manufacturer’s deduction benefit, the restoration of tax basis on certain assets
for which depreciation deductions were previously limited, and other items. Combined, these factors decreased the
Company’s effective tax rate by 4.0 percentage points. This benefit was partially offset by factors that increased the
effective tax rate by 3.1 percentage points, which largely related to increases in 3M’s income tax reserves for 2013 when
compared to 2012.
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few
exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax
authorities for years before 2005.
The IRS has completed its field examination of the Company’s U.S. federal income tax returns for the years 2005 through
2012. The Company protested certain IRS positions within these tax years and entered into the administrative appeals
process with the IRS. In December 2012, the Company received a statutory notice of deficiency for the 2006 year. The
Company filed a petition in Tax Court in the first quarter of 2013 relating to the 2006 tax year.
Currently, the Company is under examination by the IRS for its U.S. federal income tax returns for the years 2013 and
2014. It is anticipated that the IRS will complete its examination of the Company for 2013 by the end of the first quarter of
2015 and for 2014 by the end of the first quarter of 2016. As of December 31, 2014, the IRS has not proposed any
significant adjustments to the Company’s tax positions for which the Company is not adequately reserved.
Payments relating to other proposed assessments arising from the 2005 through 2014 examinations may not be made
until a final agreement is reached between the Company and the IRS on such assessments or upon a final resolution
resulting from the administrative appeals process or judicial action. In addition to the U.S. federal examination, there is
also audit activity in several U.S. state and foreign jurisdictions.
3M anticipates changes to the Company’s uncertain tax positions due to the closing of various audit years mentioned
above and closure of statutes. Currently, the Company is not estimating a significant increase or decrease in
unrecognized tax benefits as of December 31, 2014, during the next 12 months.