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Income Taxes
 12 Months Ended
Feb. 03, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Provision for Income Taxes
The components of the provision for income taxes are as follows for the fiscal years presented (in thousands):
202320222021
Current:
  
Federal
$212,369 $253,776 $364,997 
State
55,920 63,734 93,119 
Total current provision268,289 317,510 458,116 
Deferred:
  
Federal
4,301 15,074 15,992 
State
(958)8,026 459 
Total deferred provision3,343 23,100 16,451 
Total provision
$271,632 $340,610 $474,567 

The Company’s effective income tax rate differs from the federal statutory rate as follows for the fiscal years presented:
202320222021
Federal statutory rate
21.0 %21.0 %21.0 %
State tax, net of federal benefit
4.2 %4.1 %4.0 %
Excess tax benefit related to stock-based compensation(4.9)%(1.9)%(1.2)%
Eliminated bond hedge deduction following Convertible Senior Notes exchanges0.2 %1.6 %— %
Other permanent items
0.1 %(0.2)%— %
Effective income tax rate
20.6 %24.6 %23.8 %
Components of deferred tax assets (liabilities) consist of the following as of the end of the fiscal years presented (in thousands):
20232022
Operating lease liabilities$725,656 $689,319 
Inventory
50,840 45,612 
Employee benefits and withholdings47,780 47,351 
Stock-based compensation
16,440 15,739 
Gift cards
22,364 20,500 
Deferred revenue currently taxable
864 495 
Other accrued expenses not currently deductible for tax purposes15,896 15,660 
Net operating loss carryforward
55 166 
Non income-based tax reserves4,984 5,228 
Uncertain income tax positions965 526 
Insurance
3,438 3,275 
Convertible Senior Notes— 3,537 
Other
1,596 1,616 
Total deferred tax assets
890,878 849,024 
Operating lease assets(577,599)(553,138)
Property and equipment
(243,150)(214,654)
Inventory valuation
(26,676)(31,011)
Intangibles
(2,087)(5,648)
Prepaid expenses
(3,520)(3,384)
Total deferred tax liabilities
(853,032)(807,835)
Net deferred tax asset
$37,846 $41,189 
The deferred tax asset from net operating loss carryforwards of $0.1 million represents state net operating losses, which expire in 2034. The net deferred tax asset balances at February 3, 2024 and January 28, 2023 were included within long-term assets on the Consolidated Balance Sheets.
Under the Tax Cuts and Jobs Act of 2017, a one-time transition tax resulted in the elimination of the excess of the amount of financial reporting basis over the tax basis in the foreign subsidiaries and subjected $66.6 million of undistributed foreign earnings to tax. No additional income taxes have been provided for any remaining undistributed foreign earnings or foreign withholdings and US state taxes not subject to the one-time transition tax, as the Company intends to permanently reinvest the earnings from foreign subsidiaries outside the United States.
Unrecognized Tax Benefits
The following table provides a reconciliation of the Company’s total balance of unrecognized tax benefits, excluding interest and penalties (in thousands):
202320222021
Beginning of fiscal year
$1,058 $1,058 $1,058 
Increases as a result of tax positions taken in a prior period
1,463 6 193 
Decreases as a result of tax positions taken in a prior period
— — — 
Increases as a result of settlements during the current period364 — — 
Decreases as a result of settlements during the current period
(34)(6)(193)
Reductions as a result of a lapse of statute of limitations during the current period
— — — 
End of fiscal year
$2,851 $1,058 $1,058 
The balance at February 3, 2024 includes $2.3 million of unrecognized tax benefits that would impact our effective tax rate if recognized. The Company recognizes accrued interest and penalties from unrecognized tax benefits in income tax expense.
As of February 3, 2024 the Company’s total liability for uncertain tax positions, including $2.2 million for interest and penalties, was approximately $5.0 million. The Company recorded $0.7 million, $0.1 million and $0.1 million during fiscal 2023, 2022 and 2021, respectively, for the accrual of interest and penalties in the Consolidated Statements of Income. The Company does not anticipate that changes in its unrecognized tax benefits will have a material impact on the Consolidated Statements of Income during fiscal 2024.
Audits
The Company participates in the Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”). As part of CAP, tax years are audited on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. For tax years 2023 and 2022, the Company was accepted to the CAP Compliance Maintenance phase during which the IRS evaluates the necessary level of review based on complexity and other factors. The IRS has completed its examination for tax year 2022. For tax years 2021 and 2020, the Company was accepted into the CAP Bridge phase during which it is not the intent of the IRS to examine the tax return. Acceptance into the Bridge phase is based on a taxpayer’s low risk of noncompliance and having few, if any, material issues. The IRS has completed examinations of 2019 and all prior tax years. The Company is no longer subject to examination in any of its major state jurisdictions for years prior to 2019.
Recent Tax Legislation
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 that included, among other provisions, changes to the U.S. corporate income tax system, including implementing a 15% minimum tax on adjusted financial statement income for certain large corporations, a 1% excise tax on net stock repurchases after December 31, 2022 and tax incentives to promote alternative sources of energy. The Company determined the Inflation Reduction Act did not have a material impact on our financial results, including on our annual estimated effective tax rate or on our liquidity.
The Organization for Economic Cooperation and Development introduced a framework to implement a global 15% minimum corporate tax (“Pillar Two”). The European Union issued a directive to its member states to enact the Pillar Two in their local laws effective after December 2023. A number of other countries are expected to implement similar legislation with effective dates in the future. The Company is continuing to evaluate and does not currently anticipate that Pillar Two legislation will have a material impact on the Company’s financial condition, results of operations, cash flows or disclosures.