STERIS plcSTE

STERIS plc Income Taxes Disclosure

10-KFiled May 29, 20258 min read
10. INCOME TAXES
The total provision for income taxes can be reconciled to the tax computed at the Ireland statutory tax rate as follows:
Years Ended March 31,202520242023
National statutory tax rate12.5 %12.5 %12.5 %
Change in accruals for uncertain tax positions(0.1)%— %— %
U.S. state and local taxes, net of federal income tax expense (benefit)
2.8 %2.2 %(1.1)%
Change in valuation allowances 0.7 %0.9 %— %
U.S. research and development credit(0.6)%(0.7)%(0.4)%
U.S. foreign income tax credit(0.7)%(0.9)%(0.8)%
Difference in non-Ireland tax rates9.9 %8.5 %8.9 %
U.S. federal audit adjustments (0.3)%0.1 %— %
Excess tax benefit for equity compensation(0.8)%(0.7)%(0.6)%
Tax rate changes on deferred tax assets and liabilities— %(0.3)%— %
U.S. tax reform impact, GILTI and FDII
(0.3)%(0.2)%(0.3)%
All other, net0.1 %(0.1)%— %
Total Provision for Income Taxes23.2 %21.3 %18.2 %
Our effective tax rate is affected by i) the tax rates in Ireland (our country of domicile), the United States, and other jurisdictions in which we operate, and ii) the relative amount of income before income taxes by geography. Income before income taxes by geography are based on the geographic location of our operations to which such earnings are attributable. Transactions between two or more of the entities within our group occur routinely and involve the sale of goods and services, loans and related interest, intellectual property and related royalties, and shared costs. The pricing used in these transactions is consistent with the prices that would be charged between unrelated parties in accordance with our interpretation of current tax regulations. Income before income taxes by geography includes the transfer of income before income taxes that results from these transactions.
We operate a global financing structure using a wholly-owned financing company domiciled in Ireland, FinCo, which has a material impact on the relative amount of income before income taxes by geography. In each of the years presented, FinCo contributed more than 90% of the pre-tax income of Ireland operations. Its activities are driven by funding needs for acquisitions, capital investments, and working capital. A significant majority of FinCo’s income before income taxes during the years presented was driven by loans to our operations in the United States in response to such funding needs.
Significant transactions not indicative of operating trends that impacted the amount of income before income taxes by geography and resulting provision for income tax and effective tax rate include:

•In fiscal 2025, income from continuing operations before income taxes, in the United States and Other locations, was impacted by $62,275 of expenses associated with restructuring. This resulted in approximately $6,049 of an increase to our valuation allowance in Other locations.
•In fiscal 2024, income from continuing operations before income taxes, in the United States and Other locations, was impacted by $44,390 of expenses associated with restructuring. This resulted in approximately $2,600 of an increase to our valuation allowance in Other locations.
•In fiscal 2023, there was a $23,389 favorable tax impact from changes in U.S. state and local tax rates applied to existing deferred tax assets and liabilities.
Income from continuing operations before income taxes of our domestic and foreign operations based on the geographic locations of our operations was as follows:
Years Ended March 31,202520242023
United States operations$559,498 $491,890 $451,901 
Ireland operations62,515 51,510 62,664 
Other locations operations174,194 159,410 165,701 
$796,207 $702,810 $680,266 
The components of the provision for income taxes related to income from continuing operations consisted of the following:
Years Ended March 31,202520242023
Current:
United States federal$145,178 $133,498 $128,793 
United States state and local32,359 26,230 31,073 
Ireland12,885 7,639 8,837 
Other locations51,280 51,283 59,422 
241,702 218,650 228,125 
Deferred:
United States federal(43,096)(43,484)(39,030)
United States state and local(5,036)(11,222)(43,843)
Ireland(588)(923)(864)
Other locations(8,332)(13,491)(20,319)
(57,052)(69,120)(104,056)
Total Provision for Income Taxes$184,650 $149,530 $124,069 
Unrecognized Tax Benefits.  We classify uncertain tax positions and related interest and penalties as long-term liabilities within “Other liabilities” in our accompanying Consolidated Balance Sheets, unless they are expected to be paid within 12 months, in which case, the uncertain tax positions would be classified as Current liabilities within the "Accrued income taxes" line in our accompanying Consolidated Balance Sheets. We recognize interest and penalties related to unrecognized tax benefits within the “Income tax expense” line in our accompanying Consolidated Statements of Income.
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:
20252024
Unrecognized Tax Benefits Balance at April 1$2,150 $2,230 
Increases for tax provisions of current year— — 
Decreases for tax provisions of prior year(339)(80)
Unrecognized Tax Benefits Balance at March 31$1,811 $2,150 
We recognized interest and penalties related to uncertain tax positions in the provision for income taxes. As of March 31, 2025 and 2024, we had $70 and $143 accrued for interest and penalties, respectively. If all unrecognized tax benefits were recognized, the net impact on the provision for income tax expense would be $1,880. The decrease in unrecognized tax benefits from prior year is due to the expiration of old positions. It is reasonably possible that during the next 12 months, there will be no material reductions in unrecognized tax benefits as a result of the expiration of various statutes of limitations or other matters.
We operate in numerous taxing jurisdictions and are subject to regular examinations by various United States federal, state and local, as well as foreign jurisdictions. We are no longer subject to United States federal examinations for years before fiscal 2018 and, with limited exceptions, we are no longer subject to United States state and local, or non-United States, income tax
examinations by tax authorities for years before fiscal 2018. We remain subject to tax authority audits in various jurisdictions wherever we do business.
In the fourth quarter of fiscal 2021, we completed an appeals process with the U.S. Internal Revenue Service (the “IRS”) regarding proposed audit adjustments related to deductibility of interest paid on intercompany debt for fiscal years 2016 through 2017. An agreement was reached on final interest rates, which also impacted subsequent years through 2020. The total federal, state, and local tax impact of the settlement including interest is approximately $12,000 for the fiscal years 2016 through 2020, materially all of which has been paid through March 31, 2025.
In November 2023, we received two Notices of Deficiency from the IRS regarding the previously disclosed deemed dividend inclusions and associated withholding tax matter. The notices relate to the fiscal and calendar year 2018. The IRS adjustments would result in a cumulative tax liability of approximately $50,000. We are contesting the IRS’s assertions and have filed petitions with the U.S. Tax Court. We have not established reserves related to these notices. An unfavorable outcome is not expected to have a material adverse impact on our consolidated financial position but could be material to our consolidated results of operations and cash flows for any one period.
We estimate that the tax benefit from our Costa Rica Tax Holiday is $5,300 (or $0.05 per fully diluted share), annually. The Tax Holiday runs fully exempt from income tax through 2031.
Deferred Taxes.  The significant components of the deferred tax assets and liabilities recorded in our accompanying balance sheets at March 31, 2025 and 2024 were as follows:
March 31,20252024
Deferred Tax Assets:
Post-retirement benefit accrual$1,388 $1,480 
Compensation29,684 19,582 
Net operating loss carryforwards35,546 37,096 
Accrued expenses13,768 13,667 
Insurance2,126 2,817 
Illinois EO Litigation Settlement12,022 — 
Deferred income24,092 20,393 
Bad debt3,764 3,868 
Research & experimental expenditures40,476 28,347 
Operating leases (1)
37,583 47,625 
Foreign tax credit carryforwards8,144 32,137 
Other16,037 21,258 
Deferred Tax Assets224,630 228,270 
Less: Valuation allowance30,607 26,374 
Total Deferred Tax Assets194,023 201,896 
Deferred Tax Liabilities:
Depreciation and depletion96,995 92,358 
Operating leases (1)
36,610 46,657 
Intangibles440,988 518,814 
Pension3,795 3,889 
Other2,563 2,559 
Total Deferred Tax Liabilities580,951 664,277 
Net Deferred Tax Liabilities
$(386,928)$(462,381)
(1) For more information regarding our operating leases, see Note 12 titled, "Commitments and Contingencies."
At March 31, 2025, we had U.S. federal operating loss carryforwards of $7,179, which remain subject to a 20 year carryforward period. Additionally, we had non-U.S. operating loss carry forwards of $124,540. Although the majority of the
non-U.S. carryforwards have indefinite expiration periods, those carryforwards that have definite expiration periods will expire if unused between fiscal years 2026 and 2046. In addition, we have recorded pre-valuation allowance tax benefits of $2,211 related to U.S. state operating loss carryforwards. If unused, these state operating loss carryforwards will expire between fiscal years 2026 and 2046. At March 31, 2025, we had $10,462 of pre-valuation allowance tax credit carryforwards of which there are no offsets of deferred tax liabilities related to German branches of a U.S. subsidiary remaining. These credit carryforwards can be used through fiscal 2034.
We review the need for a valuation allowance against our deferred tax assets. A valuation allowance of $30,607 has been applied to a portion of the net deferred tax assets because we do not believe it is more-likely-than-not that we will receive future benefit. The valuation allowance increased during fiscal 2025 by $4,233.
Other than the tax expense previously recorded for the one-time transition tax on unremitted earnings of non-US subsidiaries, no additional provision has been made for income taxes on undistributed earnings of foreign subsidiaries as the Company’s position is that these amounts continue to be indefinitely reinvested.  The amount of undistributed earnings of subsidiaries was approximately $2,400,000 at March 31, 2025.  It is not practicable to estimate the additional income taxes and applicable withholding taxes that would be payable on the remittance of such undistributed earnings.
On October 8, 2021, the OECD announced the OECD/G20 Inclusive Framework on BEPS, which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy. On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax (GloBE), which calls for the taxation of large corporations at a minimum rate of 15%. The OECD continues to release additional guidance on the global minimum tax. The global minimum tax rules were effective from our fiscal year beginning April 1, 2024. We do not expect the impact to be material to the Company's consolidated financial statements.
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Historical Timeline

Fiscal YearFiled
2025May 29, 2025Showing above
2024May 29, 2024
2023May 26, 2023
2022May 31, 2022
2021May 28, 2021
2020May 29, 2020
2019May 30, 2019

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

Earnings Per ShareFair ValuePP&EGoodwill & IntangiblesSegmentsDebtStock Compensation