Income taxes

12 Months Ended

Feb. 03, 2023

Income taxes

Income taxes

3.Income taxes

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

(In thousands)	2022		2021		2020
Current:
Federal	$	400,752	$	472,913	$	614,207
Foreign		279		384		127
State		63,562		76,261		100,002
		464,593		549,558		714,336
Deferred:
Federal		195,529		93,114		32,433
Foreign		(24)		(38)		(104)
State		40,527		21,283		2,665
		236,032		114,359		34,994
	$	700,625	$	663,917	$	749,330

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)	2022				2021				2020
U.S. federal statutory rate on earnings before income taxes	$	654,489	21.0	%	$	643,262	21.0	%	$	714,920	21.0	%
State income taxes, net of federal income tax benefit		82,134	2.6			77,086	2.5			81,117	2.4
Jobs credits, net of federal income taxes		(37,639)	(1.2)			(39,936)	(1.3)			(27,479)	(0.8)
Other, net		1,641	0.1			(16,495)	(0.5)			(19,228)	(0.6)
	$	700,625	22.5	%	$	663,917	21.7	%	$	749,330	22.0	%

The effective income tax rate for 2022 was 22.5% compared to a rate of 21.7% for 2021 which represents a net increase of 0.8 percentage points. The effective income tax rate was higher in 2022 primarily due to decreased income tax benefits associated with stock-based compensation compared to 2021.

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 in 2021 compared to 2020.

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:

	February 3,		January 28,
(In thousands)	2023		2022
Deferred tax assets:
Deferred compensation expense	$	12,029	$	11,563
Accrued expenses		7,274		26,984
Accrued rent		473		552
Lease liabilities		2,760,588		2,617,954
Accrued insurance		7,514		6,971
Accrued incentive compensation		26,534		30,716
Share based compensation		15,309		16,605
Interest rate hedges		31		383
Tax benefit of income tax and interest reserves related to uncertain tax positions		77		79
State and foreign tax net operating loss carry forwards, net of federal tax		4,279		903
State tax credit carry forwards, net of federal tax		7,812		6,973
Other		22,756		16,715
		2,864,676		2,736,398
Less valuation allowances, net of federal income taxes		(9,001)		(5,235)
Total deferred tax assets		2,855,675		2,731,163
Deferred tax liabilities:
Property and equipment		(684,468)		(572,286)
Lease assets		(2,728,507)		(2,588,709)
Inventories		(176,798)		(68,780)
Trademarks		(307,734)		(310,011)
Prepaid insurance		(17,870)		(15,278)
Other		(1,204)		(1,353)
Total deferred tax liabilities		(3,916,581)		(3,556,417)
Net deferred tax liabilities	$	(1,060,906)	$	(825,254)

The Company has state tax credit carryforwards of approximately $7.8 million (net of federal benefit) that will expire beginning in 2023 through 2027 and the Company has approximately $13.5 million of state apportioned net operating loss carryforwards, which will begin to expire in 2029 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 $9.0 million and $5.2 million (net of federal benefit) which increased income tax expense by $3.8 million and $1.1 million in 2022 and 2021, respectively. Management believes that the results from operations will not generate sufficient taxable income to realize these deferred tax assets before they expire.

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 2018 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 2019 through 2021 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 2019 and later tax years remain open for examination by the various state taxing authorities.

As of February 3, 2023, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $8.0 million, $0.3 million and $0.0 million, respectively, for a total of $8.3 million. 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. 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 $2.4 million in the coming twelve months as a result of expiring statutes of limitations or settlements. As of February 3, 2023 and January 28, 2022, approximately $8.0 million and $6.2 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)	2022		2021		2020
Income tax expense (benefit)	$	1,797	$	(1,311)	$	2,411
Income tax related interest expense (benefit)		28		(281)		104
Income tax related penalty expense (benefit)		—		—		—

A reconciliation of the uncertain income tax positions from January 31, 2020 through February 3, 2023 is as follows:

(In thousands)	2022		2021		2020
Beginning balance	$	6,191	$	7,502	$	5,090
Increases—tax positions taken in the current year		—		—		—
Increases—tax positions taken in prior years		3,499		2,803		3,857
Decreases—tax positions taken in prior years		—		—		(1,445)
Statute expirations		(1,239)		(1,456)		—
Settlements		(463)		(2,658)		—
Ending balance	$	7,988	$	6,191	$	7,502