Item 8

  

The decrease in our effective tax rate for fiscal year 2025 compared to fiscal year 2024 was due to changes in the mix of our earnings and tax expenses between the U.S. and foreign countries. The decrease in our effective tax rate for fiscal year 2024 compared to fiscal year 2023 was primarily due to tax benefits from tax law changes, including the delay of the effective date of final foreign tax credit regulations.

  

The components of the deferred income tax assets and liabilities were as follows:

> **(In millions)**
>
> June 30, ................................ 2025 / 2025 / 2024 / 2024
> Deferred Income Tax Assets
> Stock-based compensation expense ........ $ / 909 / $ / 765
> Accruals, reserves, and other expenses ... 5,050 / 4,381
> Loss and credit carryforwards ........... 2,114 / 1,741
> Amortization ............................ 4,118 / 4,159
> Leasing liabilities ..................... 12,874 / 6,504
> Unearned revenue ........................ 4,324 / 3,717
> Book/tax basis differences in investments and debt ... 303 / 9
> Capitalized research and development .... 16,891 / 11,442
> Other ................................... 529 / 426
> Deferred income tax assets .............. 47,112 / 33,144
> Less valuation allowance ................ ( 1,169 / ) / ( 1,045 / )
> Deferred income tax assets, net of valuation allowance ... $ / 45,943 / $ / 32,099
> Deferred Income Tax Liabilities
> Leasing assets .......................... $ / ( 12,696 / ) / $ / ( 6,503 / )
> Depreciation ............................ ( 5,699 / ) / ( 3,940 / )
> Deferred tax on foreign earnings ........ ( 1,148 / ) / ( 1,837 / )
> Other ................................... ( 127 / ) / ( 167 / )
> Deferred income tax liabilities ......... $ / ( 19,670 / ) / $ / ( 12,447 / )
> Net deferred income tax assets .......... $ / 26,273 / $ / 19,652
> Reported As
> Other long-term assets .................. $ / 29,108 / $ / 22,270
> Long-term deferred income tax liabilities ... ( 2,835 / ) / ( 2,618 / )
> Net deferred income tax assets .......... $ / 26,273 / $ / 19,652

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or recovered.

As of June 30, 2025, we had federal, state, and foreign net operating loss carryforwards of $ 390  million, $ 836  million, and $ 2.6  billion, respectively. The federal and state net operating loss carryforwards have varying expiration dates ranging  from fiscal year   2026    to   2045   or indefinite carryforward periods , if not utilized. The majority of our foreign net operating loss carryforwards do not expire. Certain acquired net operating loss carryforwards are subject to an annual limitation but are expected to be realized with the exception of those which have a valuation allowance. As of June 30, 2025, we had $ 816  million  federal capital loss carryforwards for U.S. tax purposes. The federal capital loss carryforwards will expire in fiscal year   2030   if not utilized.

The valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards, federal capital loss carryforwards, and other net deferred tax assets that may not be realized.

Income taxes paid, net of refunds, were $ 28.7  billion, $ 23.4  billion, and $ 23.1  billion in fiscal years 2025, 2024, and 2023, respectively.

  

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PART II