DONALDSON Co INCDCI

DONALDSON Co INC Income Taxes Disclosure

10-KFiled Sep 26, 20255 min read
Note 8. Income Taxes
The components of earnings before income taxes were as follows (in millions):
Year Ended July 31,
202520242023
U.S.$245.5 $233.4 $178.0 
Foreign246.7 301.9 290.7 
Total$492.2 $535.3 $468.7 
The components of the provision for income taxes were as follows (in millions):
Year Ended July 31,
202520242023
Current
Federal$52.0 $47.2 $38.1 
State9.2 8.8 7.3 
Foreign88.0 89.6 79.8 
Total current149.2 145.6 125.2 
Deferred
Federal(13.5)(16.1)(13.3)
State(1.3)(1.7)(1.8)
Foreign(9.2)(6.5)(0.2)
Total deferred(24.0)(24.3)(15.3)
Total provision for income taxes$125.2 $121.3 $109.9 
The reconciliation of the U.S. statutory federal income tax rate with the effective income tax rate was as follows:
Year Ended July 31,
202520242023
U.S. statutory federal income tax rate21.0 %21.0 %21.0 %
State income taxes1.8 1.2 0.9 
Foreign operations2.5 2.7 3.8 
Global intangible low tax income
0.2 0.2 0.2 
Foreign derived intangible income
(1.5)(1.3)(1.6)
Research and development credit(1.0)(0.9)(0.7)
Change in unrecognized tax benefits0.2 1.2 — 
Tax benefits on stock-based compensation (0.9)(1.2)(0.7)
Change in valuation allowance related to impairment
2.6 — — 
Other0.5 (0.2)0.5 
Effective income tax rate25.4 %22.7 %23.4 %
The tax effects of temporary differences that give rise to deferred tax assets and liabilities were as follows (in millions):
July 31,
20252024
Deferred tax assets
Accrued expenses$14.6 $14.3 
Compensation and retirement plans30.4 26.6 
Capitalization of R&D costs42.1 32.9 
Net operating loss (NOL) and tax credit carryforwards26.7 17.6 
Operating lease assets15.5 15.6 
Other12.6 6.2 
Gross deferred tax assets141.9 113.2 
Valuation allowance(30.0)(9.1)
Deferred tax assets, net of valuation allowance111.9 104.1 
Deferred tax liabilities
Depreciation and amortization(55.9)(74.5)
Operating lease liabilities(15.1)(14.9)
Other(2.8)(3.8)
Deferred tax liabilities(73.8)(93.2)
Net deferred tax asset (liability)
$38.1 $10.9 
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted into U.S. law, which primarily modified tax provisions from the 2017 Tax Cuts and Jobs Act that include but are not limited to the reinstatement of 100% bonus depreciation, the deduction of U.S.-based research expenditures, the deduction of interest expense, the deduction for foreign-derived intangible income (FDII), the tax and related foreign tax credit on Global Intangible Low-Taxed Income (GILTI), and the base-erosion anti-abuse tax (BEAT).
The impact of the enacted legislation effective for the Company's current fiscal year is the permanent reinstatement of 100% bonus depreciation. The other provisions within the OBBBA have staggered effective dates to be phased in between fiscal years 2026 and 2027, and the Company continues to evaluate the future impact of these provisions.
The activity in the NOL and tax credit valuation allowances was as follows (in millions):
Year Ended July 31,
202520242023
Balance as of beginning of year$(9.1)$(6.4)$(3.4)
Additions charged to costs and expenses(14.0)(3.6)(3.0)
Deductions from reserves0.4 0.9 — 
Balance as of end of year$(22.7)$(9.1)$(6.4)
As of July 31, 2025, the Company had deferred tax assets related to U.S. federal foreign tax credits of $10.7 million, related to state research and development credits of $3.8 million and related to foreign operating loss carryovers of $10.6 million. The U.S. federal tax credits will expire after 10 years, the state portion after one to 20 years and the foreign portion has an indefinite carryover period. As of July 31, 2025, the Company had provided $22.7 million for a valuation allowance against certain of these deferred tax assets based on management’s determination it is more likely than not the tax benefits related to these assets will not be realized.
As of July 31, 2025, the total undistributed earnings of the Company’s non-U.S. subsidiaries were $1.5 billion, of which $1.1 billion were not considered indefinitely reinvested. The Company is subject to foreign withholding taxes on a small portion of these earnings distributable in the future in the form of dividends. Thus, the Company provides for foreign withholding taxes payable upon future dividend distributions of the earnings not considered indefinitely reinvested annually. For the year ended July 31, 2025, the Company recognized a tax charge of $6.0 million related to these foreign withholding taxes. The remaining $396.7 million of earnings are considered indefinitely reinvested and it is not practicable to estimate, within any reasonable range, the additional taxes that may be payable on the potential distribution of the portion of the undistributed earnings considered indefinitely reinvested.
The transition tax related to the U.S. Tax Cuts and Jobs Act of 2017 on undistributed earnings was accrued in fiscal 2018 and it is payable over an eight year period. The final $22.1 million installment of the transition tax will be paid within 12 months and is classified in the current income tax payable on the Consolidated Balance Sheets as of July 31, 2025.
The reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows (in millions):
Year Ended July 31,
202520242023
Balance as of beginning of year$20.8 $15.0 $15.2 
Additions for tax positions of the current year3.3 2.8 2.5 
Additions for tax positions of prior years0.6 6.2 — 
Reductions for tax positions of prior years— (0.1)0.1 
Reductions due to lapse of applicable statute of limitations(2.7)(3.1)(2.8)
Balance as of end of year$22.0 $20.8 $15.0 
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income taxes in the Consolidated Statements of Earnings. As of July 31, 2025 and 2024, accrued interest and penalties on a gross basis were $2.7 million and $2.2 million, respectively. During the year ended July 31, 2025, the Company recognized interest expense, net of tax benefit, of $0.8 million. If the Company were to prevail on all unrecognized tax benefits recorded, substantially all the unrecognized tax benefits would benefit the effective tax rate. With an average statute of limitations of five years, up to $2.8 million of the unrecognized tax benefits could potentially expire in the next 12 months, unless extended by an audit.
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The U.S. Internal Revenue Service has completed examinations of the Company’s U.S. federal income tax returns through fiscal 2021. With few exceptions, the Company is no longer subject to state and foreign income tax examinations by tax authorities for years before fiscal 2020.
The Company believes it is remote that any adjustment necessary to the reserve for income taxes for the next 12 months will be material. However, it is possible the ultimate resolution of audits or disputes may result in a material change to the Company’s reserve for income taxes, although the quantification of such potential adjustments cannot be made at this time.
Free Sentinel

Want the next DONALDSON Co INC income taxes disclosure the moment it drops?

Set a Sentinel and we'll alert you the moment DONALDSON Co INC's next filing hits EDGAR. No credit card, your email never gets sold.

Track for free

Historical Timeline

Fiscal YearFiled
2025Sep 26, 2025Showing above
2024Sep 27, 2024
2023Sep 22, 2023
2022Sep 23, 2022
2021Sep 24, 2021
2020Sep 25, 2020
2019Sep 27, 2019
2016Sep 23, 2016
2015Nov 10, 2015

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

RevenueEarnings Per ShareFair ValuePP&EGoodwill & IntangiblesLeasesSegmentsDebtCommitmentsStock CompensationNew Standards