Union Pacific 2012 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 2012 2011 2010
Federal statutory tax rate 35.0 % 35.0 % 35.0 %
State statutory rates, net of federal benefits 3.1 3.1 3.1
Deferred tax adjustments (0.1) (0.5) (0.3)
Tax credits (0.5) (0.5) (0.7)
Other 0.1 0.4 0.2
Effective tax rate 37.6 % 37.5 % 37.3 %
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In February of 2011, Arizona enacted legislation that will decrease the state’s corporate tax rate. This
reduced our deferred tax expense by $14 million in the first quarter of 2011.
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 assets relate to deductions that already have been claimed for financial reporting purposes
but not for 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.
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Deferred income tax (liabilities)/assets were comprised of the following at December 31:
Millions 2012 2011
Deferred income tax liabilities:
Property $ (13,863) $ (13,312)
Other (237) (207)
Total deferred income tax liabilities (14,100) (13,519)
Deferred income tax assets:
Accrued wages 69 63
Accrued casualty costs 238 259
Debt and leases 185 365
Retiree benefits 365 342
Credits 200 197
Other 198 231
Total deferred income tax assets $ 1,255 $ 1,457
Net deferred income tax liability $ (12,845) $ (12,062)
Current portion of deferred taxes $ 263 $ 306
Non-current portion of deferred taxes (13,108) (12,368)
Net deferred income tax liability $ (12,845) $ (12,062)
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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 for purposes of estimating whether future
taxable income will be sufficient to realize a deferred tax asset. In 2012 and 2011, there were no valuation
allowances.
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.