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Income taxes
6 Months Ended
Jul. 29, 2016
Income taxes  
Income taxes

 

3.Income taxes

 

Under the accounting standards for income taxes, the asset and liability method is used for computing the future income tax consequences of events that have been recognized in the Company’s consolidated financial statements or income tax returns.

 

Income tax reserves are determined using the methodology established by accounting standards for income taxes which require companies to assess each income tax position taken using the following two-step approach. A determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position.

 

The Company’s 2011 and earlier tax years are not open for further examination by the Internal Revenue Service (“IRS”). The IRS, at its discretion, may choose to examine the Company’s 2012 through 2014 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, the Company’s 2011 and later tax years remain open for examination by the various state taxing authorities.

 

As of July 29, 2016, the total reserves for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $6.6 million, $1.0 million and $0.9 million, respectively, for a total of $8.5 million. This total amount is reflected in noncurrent Other liabilities in the condensed consolidated balance sheet.

 

The Company believes it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $2.1 million in the coming twelve months principally as a result of the effective settlement of uncertain tax positions. As of July 29, 2016, approximately $6.6 million of the reserve for uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

 

The effective income tax rates for the 13-week and 26-week periods ended July 29, 2016 were 36.8% and 36.1%, respectively, compared to rates of 38.0% and 37.8%, respectively, for the 13-week and 26-week periods ended July 31, 2015. The tax rate for the 2016 13-week period was lower than for the comparable 2015 period primarily due to the retroactive enactment in 2015 of federal jobs tax credits (principally the Work Opportunity Tax Credit or “WOTC”) for employees hired after December 31, 2014.  The tax rate for the 2016 26-week period was lower than for the comparable 2015 period primarily due to the 2016 adoption of amendments to accounting guidance for share-based payment discussed in Note 1, as well as the retroactive enactment of the WOTC. While the Company eventually did benefit from the WOTC associated with employees hired in the 13-week and 26-week periods ended July 31, 2015, the benefit could not be recognized until the federal laws authorizing the credits were retroactively reenacted in December 2015.