Income taxes

9 Months Ended

Oct. 29, 2021

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 2017 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 2018 through 2020 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 October 29, 2021, the total reserves for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $8.3 million, $0.7 million and $0.0 million, respectively, for a total of $9.0 million. This total amount is reflected in noncurrent other liabilities in the condensed consolidated balance sheet.

The Company’s reserve for uncertain tax positions is expected to be reduced by $2.2 million in the coming twelve months as a result of expiring statutes of limitations. As of October 29, 2021, approximately $8.3 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 39-week periods ended October 29, 2021 were 22.2% and 21.8% respectively compared to rates of 21.6% and 21.8% for the 13-week and 39-week periods ended October 30,

2020. The primary factors affecting the income tax rates for the 13-week and 39-week periods in 2021 compared to the 13-week and 39-week periods in 2020 were changes in the state effective tax rate, a reduced benefit associated with share-based compensation, an increase in uncertain tax positions and greater benefit associated with federal tax credits.