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Income taxes

12 Months Ended

Jan. 29, 2021

3.Income taxes

The provision (benefit) for income taxes consists of the following:


(In thousands)	2020		2019		2018
Current:
Federal	$	614,207	$	368,451	$	320,361
Foreign		127		102		159
State		100,002		65,215		53,091
		714,336		433,768		373,611
Deferred:
Federal		32,433		45,966		48,262
Foreign		(104)		(15)		(38)
State		2,665		9,456		4,109
		34,994		55,407		52,333
	$	749,330	$	489,175	$	425,944

A reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to income before income taxes is summarized as follows:


(Dollars in thousands)	2020				2019				2018
U.S. federal statutory rate on earnings before income taxes	$	714,920	21.0	%	$	462,364	21.0	%	$	423,237	21.0	%
State income taxes, net of federal income tax benefit		81,117	2.4			60,936	2.8			44,584	2.2
Jobs credits, net of federal income taxes		(27,479)	(0.8)			(27,768)	(1.3)			(27,506)	(1.4)
Other, net		(19,228)	(0.6)			(6,357)	(0.3)			(14,371)	(0.7)
	$	749,330	22.0	%	$	489,175	22.2	%	$	425,944	21.1	%

The effective income tax rate for 2020 was 22.0% compared to a rate of 22.2% for 2019 which represents a net decrease of 0.2 percentage points. The effective income tax rate was lower in 2020 primarily due to increased tax benefits associated with share-based compensation and a larger income tax rate benefit from state taxes offset by a lower income tax rate benefit from federal income tax credits due primarily to higher pre-tax earnings in 2020 compared to 2019.

The effective income tax rate for 2019 was 22.2% compared to a rate of 21.1% for 2018 which represents a net increase of 1.1 percentage points. The effective income tax rate was higher in 2019 primarily due to an increase in income taxes resulting from changes in state income tax laws and federal and state income tax benefits arising from the Tax Cuts and Jobs Act in 2018 that did not reoccur in 2019.

Deferred taxes reflect the effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:


	January 29,		January 31,
(In thousands)	2021		2020
Deferred tax assets:
Deferred compensation expense	$	9,161	$	7,556
Accrued expenses		52,195		16,788
Accrued rent		650		401
Lease liabilities		2,459,976		2,167,780
Accrued insurance		6,550		5,895
Accrued incentive compensation		46,083		16,721
Share based compensation		19,495		16,321
Interest rate hedges		730		1,076
Tax benefit of income tax and interest reserves related to uncertain tax positions		189		164
Other		6,823		3,702
State tax net operating loss carry forwards, net of federal tax		804		555
State tax credit carry forwards, net of federal tax		6,619		7,534
		2,609,275		2,244,493
Less valuation allowances, net of federal income taxes		(4,077)		(4,077)
Total deferred tax assets		2,605,198		2,240,416
Deferred tax liabilities:
Property and equipment		(481,279)		(389,080)
Lease assets		(2,433,195)		(2,143,996)
Inventories		(74,985)		(59,075)
Trademarks		(312,258)		(310,862)
Prepaid insurance		(13,532)		(11,933)
Other		(498)		(697)
Total deferred tax liabilities		(3,315,747)		(2,915,643)
Net deferred tax liabilities	$	(710,549)	$	(675,227)

The Company has state tax credit carryforwards of approximately $6.6 million (net of federal benefit) that will expire beginning in 2022 through 2028 and the Company has approximately $20.9 million of state apportioned net operating loss carryforwards, which will begin to expire in 2032 and will continue through 2039.

The Company established a valuation allowance for the state tax credit carryforwards, in the amount of $4.4 million (net of federal benefit) increasing income tax expense in 2017. In 2019, the Company updated its projections, releasing $0.4 million of valuation allowance (net of federal benefit). Management continues to believe that results from operations will not generate sufficient taxable income to realize the remaining state tax credits before they expire, and therefore made no adjustment to the valuation allowance in 2020.

Management believes that it is more likely than not that the Company’s results of operations and its existing deferred tax liabilities will generate sufficient taxable income to realize the remaining deferred tax assets.

The Company’s 2016 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 2017 through 2019 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, with few exceptions, the Company’s 2017 and later tax years remain open for examination by the various state taxing authorities.

As of January 29, 2021, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $7.5 million, $0.5 million and $0.0 million, respectively, for a total of $8.0 million. As of January 31, 2020, accruals for uncertain tax benefits, interest expense related to income taxes and

potential income tax penalties were $5.1 million, $0.4 million and $0.0 million, respectively, for a total of $5.5 million. These totals are reflected in noncurrent Other liabilities in the consolidated balance sheets.

The Company’s reserve for uncertain tax positions is expected to be reduced by $3.4 million in the coming twelve months as a result of expiring statutes of limitations. As of January 29, 2021 and January 31, 2020, approximately $7.5 million and $5.1 million, respectively, of the 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 amounts associated with uncertain tax positions included in income tax expense consists of the following:


(In thousands)	2020		2019		2018
Income tax expense (benefit)	$	2,411	$	130	$	3,919
Income tax related interest expense (benefit)		104		(406)		133
Income tax related penalty expense (benefit)		—		(882)		33

A reconciliation of the uncertain income tax positions from February 3, 2018 through January 29, 2021 is as follows:


(In thousands)	2020		2019		2018
Beginning balance	$	5,090	$	4,960	$	1,041
Increases—tax positions taken in the current year		—		—		95
Increases—tax positions taken in prior years		3,857		1,239		3,914
Decreases—tax positions taken in prior years		(1,445)		(1,109)		—
Statute expirations		—		—		—
Settlements		—		—		(90)
Ending balance	$	7,502	$	5,090	$	4,960

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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