Union Pacific 2010 Annual Report Download - page 69

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For the years ended December 31, reconciliations between statutory and effective tax rates are as
follows:
Tax Rate Percentages 2010 2009 2008
Federal statutory tax rate 35.0% 35.0% 35.0%
State statutory rates, net of federal benefits 3.1 3.2 3.0
Deferred tax adjustments (0.3) (0.8) (0.7)
Tax credits (0.7) (0.8) (0.9)
Other 0.2 (0.2) (0.4)
Effective tax rate 37.3% 36.4% 36.0%
In February of 2009, California enacted legislation that changed how we determine the amount of income
subject to California tax. This change reduced our 2009 deferred tax expense by $14 million.
In January of 2008, Illinois enacted legislation that changed how we determine the amount of income
subject to Illinois tax. This change reduced our 2008 deferred tax expense by $16 million.
Deferred tax assets and liabilities are recorded for the expected future tax consequences of events that
are reported in different periods for financial reporting and income tax purposes. The majority of our
deferred tax liabilities relate to differences between the tax bases and financial reporting amounts of our
land and depreciable property, due to accelerated tax depreciation (including bonus depreciation),
revaluation of assets in purchase accounting transactions, and differences in capitalization methods.
Deferred income tax liabilities/(assets) were comprised of the following at December 31:
Millions 2010 2009
Net current deferred income tax asset $ (261) $ (339)
Property 11,581 10,419
State taxes, net of federal benefits 772 715
Other (796) (90)
Net long-term deferred income tax liabilities 11,557 11,044
Net deferred income tax liability $ 11,296 $ 10,705
When appropriate, we record a valuation allowance against deferred tax assets to reflect that these tax
assets may not be realized. In determining whether a valuation allowance is appropriate, we consider
whether it is more likely than not that all or some portion of our deferred tax assets will not be realized,
based on management’s judgments using available evidence about future events. In 2010, there is no
valuation allowance because the deferred tax assets associated with the 2009 valuation allowance
expired unrealized. Our total valuation allowance at December 31, 2009 was $8 million.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon
examination by tax authorities. The amount recognized is measured as the largest amount of benefit that
is greater than 50 percent likely to be realized upon settlement. Unrecognized tax benefits are tax
benefits claimed in our tax returns that do not meet these recognition and measurement standards.