UPS 2008 Annual Report Download - page 99

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 13. INCOME TAXES
The income tax expense (benefit) for the years ended December 31 consists of the following (in millions):
2008 2007 2006
Current:
U.S. Federal ....................................................... $1,510 $ 35 $1,674
U.S. State and Local ................................................. 173 67 217
Non-U.S. ......................................................... 155 107 129
Total Current .................................................. 1,838 209 2,020
Deferred:
U.S. Federal ....................................................... 115 (79) 291
U.S. State and Local ................................................. 4 (36) 33
Non-U.S. ......................................................... 55 (45) (36)
Total Deferred ................................................. 174 (160) 288
Total ......................................................... $2,012 $ 49 $2,308
Income before income taxes includes the following components (in millions):
2008 2007 2006
United States ........................................................... $4,547 $ (32) $6,020
Non-U.S. .............................................................. 468 463 490
$5,015 $431 $6,510
A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended
December 31 consists of the following:
2008 2007 2006
Statutory U.S. federal income tax rate ........................................... 35.0% 35.0% 35.0%
U.S. state and local income taxes (net of federal benefit) ............................ 2.5 0.5 2.2
Non-U.S. tax rate differential .................................................. 1.0 (21.6) (1.2)
Nondeductible/nontaxable items ................................................ 5.1 3.1 1.4
U.S. federal tax credits ....................................................... (3.0) (22.0) (2.0)
Other ..................................................................... (0.5) 16.4 0.1
Effective income tax rate ..................................................... 40.1% 11.4% 35.5%
In the fourth quarter of 2008, we completed our annual goodwill impairment testing and determined that our
UPS Freight reporting unit, which was formed through the acquisition of Overnite Corporation in 2005, had a
goodwill impairment of $548 million. The impairment was not deductible for tax purposes and therefore
negatively impacted our effective tax rate in 2008.
During the third quarter of 2006, we recognized a $52 million reduction of income tax expense related to
favorable developments with certain U.S. federal tax contingency matters involving non-U.S. operations.
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