Income taxes

12 Months Ended

Jan. 28, 2022

Income taxes

Income taxes

3.Income taxes

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

(In thousands)	2021		2020		2019
Current:
Federal	$	472,913	$	614,207	$	368,451
Foreign		384		127		102
State		76,261		100,002		65,215
		549,558		714,336		433,768
Deferred:
Federal		93,114		32,433		45,966
Foreign		(38)		(104)		(15)
State		21,283		2,665		9,456
		114,359		34,994		55,407
	$	663,917	$	749,330	$	489,175

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)	2021				2020				2019
U.S. federal statutory rate on earnings before income taxes	$	643,262	21.0	%	$	714,920	21.0	%	$	462,364	21.0	%
State income taxes, net of federal income tax benefit		77,086	2.5			81,117	2.4			60,936	2.8
Jobs credits, net of federal income taxes		(39,936)	(1.3)			(27,479)	(0.8)			(27,768)	(1.3)
Other, net		(16,495)	(0.5)			(19,228)	(0.6)			(6,357)	(0.3)
	$	663,917	21.7	%	$	749,330	22.0	%	$	489,175	22.2	%

The effective income tax rate for 2021 was 21.7% compared to a rate of 22.0% for 2020 which represents a net decrease of 0.3 percentage points. The effective income tax rate was lower in 2021 primarily due to increased income tax benefits associated with federal tax credits partially offset by a higher state effective tax rate compared to 2020.

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.

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 28,		January 29,
(In thousands)	2022		2021
Deferred tax assets:
Deferred compensation expense	$	11,563	$	9,161
Accrued expenses		26,984		52,195
Accrued rent		552		650
Lease liabilities		2,617,954		2,459,976
Accrued insurance		6,971		6,550
Accrued incentive compensation		30,716		46,083
Share based compensation		16,605		19,495
Interest rate hedges		383		730
Tax benefit of income tax and interest reserves related to uncertain tax positions		79		189
State and foreign tax net operating loss carry forwards, net of federal tax		903		804
State tax credit carry forwards, net of federal tax		6,973		6,619
Other		16,715		6,823
		2,736,398		2,609,275
Less valuation allowances, net of federal income taxes		(5,235)		(4,077)
Total deferred tax assets		2,731,163		2,605,198
Deferred tax liabilities:
Property and equipment		(572,286)		(481,279)
Lease assets		(2,588,709)		(2,433,195)
Inventories		(68,780)		(74,985)
Trademarks		(310,011)		(312,258)
Prepaid insurance		(15,278)		(13,532)
Other		(1,353)		(498)
Total deferred tax liabilities		(3,556,417)		(3,315,747)
Net deferred tax liabilities	$	(825,254)	$	(710,549)

The Company has state tax credit carryforwards of approximately $7.0 million (net of federal benefit) that will expire beginning in 2022 through 2026 and the Company has approximately $18.1 million of state apportioned net operating loss carryforwards, which will begin to expire in 2032 and will continue through 2041.

The Company has a valuation allowance for certain state tax credit carryforwards and foreign net operating loss carryforwards, in the amount of $5.2 million and $4.1 million (net of federal benefit) which increased income tax expense by $1.1 million and $0.0 million in 2021 and 2020, respectively. Management believes that the results from operations will not generate sufficient taxable income to realize these deferred tax assets in the near future.

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 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 2018 and later tax years remain open for examination by the various state taxing authorities.

As of January 28, 2022, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $6.2 million, $0.2 million and $0.0 million, respectively, for a total of $6.4 million. 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. 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 $1.7 million in the coming twelve months as a result of expiring statutes of limitations. As of January 28, 2022 and January 29, 2021, approximately $6.2 million and $7.5 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)	2021		2020		2019
Income tax expense (benefit)	$	(1,311)	$	2,411	$	130
Income tax related interest expense (benefit)		(281)		104		(406)
Income tax related penalty expense (benefit)		—		—		(882)

A reconciliation of the uncertain income tax positions from February 2, 2019 through January 28, 2022 is as follows:

(In thousands)	2021		2020		2019
Beginning balance	$	7,502	$	5,090	$	4,960
Increases—tax positions taken in the current year		—		—		—
Increases—tax positions taken in prior years		2,803		3,857		1,239
Decreases—tax positions taken in prior years		—		(1,445)		(1,109)
Statute expirations		(1,456)		—		—
Settlements		(2,658)		—		—
Ending balance	$	6,191	$	7,502	$	5,090