Visa 2008 Annual Report Download - page 175

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2008
(in millions, except as noted)
the payments are made and thus, as of September 30, 2008, the Company has a deferred tax asset of $857 million related to these payments, which is net of a
reserve to reflect management's best estimate of the amount of the benefit to be realized.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income
over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of
its deferred tax assets recorded.
The Company had state research and development tax credit carry forwards of approximately $19 million at September 30, 2008 that may be carried
forward indefinitely. The Company expects to realize the benefit of the credit carry forwards in future years.
The income tax expense differs from the amount of income tax determined by applying the applicable U.S. federal statutory rate of 35% to pretax
income, as a result of the following:
For the Years Ended September 30
2008 2007 2006
Dollars Percent Dollars Percent Dollars Percent
(in millions)
U.S. federal income tax $ 467 35% $ (485) 35% $ 253 35%
State income taxes, net of federal benefit 43 3% (11) 1% (11) (1)%
Non-U.S. tax effect, net of federal benefit 13 1% — — — —
Reserve for tax uncertainties related to litigation 103 8% 180 (13)% — —
Other, net 21 2% 2 — 15 2%
One-time adjustment to reflect benefit from remeasurement of deferred taxes due to state apportionment
decrease (115) (9)% — — — —
Minority interest—not subject to tax — — (2) — (6) (1)%
Income tax (benefit) expense $ 532 40% $ (316) 23% $ 251 35%
The effective income tax rate for the year ended September 30, 2008 differs from that of 2007 primarily due to the tax reserves related to litigation, and
the combined effect of the loss of the California special deduction after the Company's IPO, the change in state tax apportionment, and a one-time tax benefit
attributable to the remeasurement of deferred taxes.
Prior to the Company's IPO, the State of California, where the Company is headquartered, historically did not tax a substantial portion of the reported
income on the basis that the Company operated on a cooperative or mutual basis and therefore was eligible for a special deduction. As a result of the
Company's IPO and consequent ownership by parties other than its financial institution customers, the Company is no longer eligible to claim the special
deduction, resulting in a tax increase. The tax increase was partially offset by a tax decrease resulting from a change in the Company's state
174