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78 Cisco Systems, Inc.
Notes to Consolidated Financial Statements
13. Income Taxes
(a) Provision for Income Taxes
The provision for income taxes consists of the following (in millions):
Years Ended July 26, 2008 July 28, 2007 July 29, 2006
Federal:
Current $ 2,384 $ 1,979 $ 1,877
Deferred (693) (554) (292)
1,691 1,425 1,585
State:
Current 173 344 215
Deferred (62) (68) (20)
111 276 195
Foreign:
Current 418 427 304
Deferred (17) — (31)
401 427 273
Total $ 2,203 $ 2,128 $ 2,053
The Company paid income taxes of $2.8 billion, $1.7 billion, and $1.6 billion in fiscal 2008, 2007, and 2006, respectively. Income before
provision for income taxes consists of the following (in millions):
Years Ended July 26, 2008 July 28, 2007 July 29, 2006
United States $ 3,044 $ 3,160 $ 2,685
International 7,211 6,301 4,948
Total $ 10,255 $ 9,461 $ 7,633
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes
consists of the following:
Years Ended July 26, 2008 July 28, 2007 July 29, 2006
Federal statutory rate 35.0% 35.0% 35.0%
Effect of:
State taxes, net of federal tax benefit 0.9 2.0 1.8
Foreign income at other than U.S. rates (16.1) (12.8) (8.7)
Tax credits (0.8) (2.2) (0.6)
Tax audit settlement (1.6) — (1.6)
Nondeductible compensation 1.8 0.6 1.1
International realignment 2.2 — —
Other, net 0.1 (0.1) (0.1)
Total 21.5% 22.5% 26.9%
The tax provision for fiscal 2008 included tax expense of $229 million related to the intercompany realignment of certain of the Company’s
foreign operations during the third and fourth quarters of fiscal 2008. The tax provision for fiscal 2008 also included a net tax benefit of
$162 million related to a settlement of certain tax matters with the IRS during the first quarter of fiscal 2008. In December 2006, the Tax Relief
and Health Care Act of 2006 reinstated the U.S. federal R&D tax credit, retroactive to January 1, 2006. As a result, the tax provision for fiscal
2007 included a tax benefit of approximately $60 million related to the U.S. federal R&D tax credit attributable to fiscal 2006 R&D. The tax
provision for fiscal 2006 included a benefit of approximately $124 million from the favorable settlement of a tax audit in a foreign jurisdiction.