Income Taxes

12 Months Ended

Jan. 28, 2023

Income Taxes [Abstract]

Income Taxes

11.   Income Taxes

Reconciliations of the federal statutory income tax rate to income tax expense were as follows ($ in millions):

	2023			2022			2021
Federal income tax at the statutory rate	$	376		$	635		$	499
State income taxes, net of federal benefit		63			88			72
Change in unrecognized tax benefits		(45)			(88)			20
Expense (benefit) from foreign operations		(4)			(8)			20
Other		(20)			(53)			(32)
Income tax expense	$	370		$	574		$	579
Effective income tax rate		20.7	%		19.0	%		24.3	%

Earnings before income tax expense and equity in income of affiliates by jurisdiction were as follows ($ in millions):

	2023		2022		2021
United States	$	1,533	$	2,677	$	2,203
Foreign		255		347		174
Earnings before income tax expense and equity in income of affiliates	$	1,788	$	3,024	$	2,377

Income tax expense (benefit) was comprised of the following ($ in millions):

	2023		2022		2021
Current:
Federal	$	213	$	367	$	447
State		64		132		117
Foreign		42		61		51
		319		560		615
Deferred:
Federal		33		22		(25)
State		19		(9)		(16)
Foreign		(1)		1		5
		51		14		(36)
Income tax expense	$	370	$	574	$	579

Deferred taxes are the result of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities were comprised of the following ($ in millions):

	January 28, 2023		January 29, 2022
Deferred revenue	$	67	$	76
Compensation and benefits		41		156
Stock-based compensation		29		31
Other accrued expenses		47		46
Operating lease liabilities		729		707
Loss and credit carryforwards		161		143
Other		43		45
Total deferred tax assets		1,117		1,204
Valuation allowance		(150)		(128)
Total deferred tax assets after valuation allowance		967		1,076
Inventory		(37)		(24)
Property and equipment		(169)		(270)
Operating lease assets		(698)		(676)
Goodwill and intangibles		(71)		(64)
Other		(39)		(39)
Total deferred tax liabilities		(1,014)		(1,073)
Net deferred tax assets (liabilities)	$	(47)	$	3

Deferred taxes were presented as follows ($ in millions):

Balance Sheet Location	January 28, 2023		January 29, 2022
Other assets	$	4	$	25
Long-term liabilities		(51)		(22)
Net deferred tax assets (liabilities)	$	(47)	$	3

As of January 28, 2023, we had deferred tax assets for net operating loss carryforwards from international operations of $117 million, of which $92 million will expire in various years through 2040 and the remaining amounts have no expiration; acquired U.S. federal net operating loss carryforwards of $7 million, of which $3 million will expire in various years between 2025 and 2029 and the remaining amounts have no expiration; U.S. federal foreign tax credit carryforwards of $16 million, which will expire between 2024 and 2033; state credit carryforwards of $3 million, which will expire between 2024 and 2028; state net operating loss carryforwards of $9 million, which will expire between 2024 and 2043; international credit carryforwards of $1 million, which have no expiration; and international capital loss carryforwards of $8 million, which have no expiration.

As of January 28, 2023, a valuation allowance of $150 million had been established, of which $16 million is against U.S. federal, foreign tax credit carryforwards, $11 million is against international and state capital loss carryforwards, $122 million is against international and state net operating loss carryforwards, and $1 million is against international and state credit carryforwards. The increase in fiscal 2023 was primarily due to current year loss activity from international and state net operating loss carryforwards, the set-up of additional valuation allowances against U.S. federal foreign tax credit and state capital loss carryforwards, and the exchange rate impact on the valuation allowance against certain international net operating loss carryforwards. These increases were partially offset by the expiration of certain international net operating loss carryforwards and the release of valuation allowances relating to federal net operating and capital loss carryforwards.

Reconciliations of changes in unrecognized tax benefits were as follows ($ in millions):

	2023		2022		2021
Balances at beginning of period	$	235	$	327	$	318
Gross increases related to prior period tax positions		28		3		17
Gross decreases related to prior period tax positions(1)		(75)		(103)		(25)
Gross increases related to current period tax positions		21		28		29
Settlements with taxing authorities		-		(7)		(1)
Lapse of statute of limitations		(46)		(13)		(11)
Balances at end of period	$	163	$	235	$	327

(1)Represents multi-jurisdiction, multi-year resolutions of certain discrete tax matters.

Unrecognized tax benefits of $141 million, $214 million and $307 million as of January 28, 2023, January 29, 2022, and January 30, 2021, respectively, would favorably impact our effective income tax rate if recognized.

We recognize interest and penalties (not included in the “unrecognized tax benefits” above), as well as interest received from favorable tax settlements, as components of income tax expense. Interest income of $6 million, interest income of $20 million and interest expense of $4 million was recognized in fiscal 2023, fiscal 2022 and fiscal 2021, respectively. As of January 28, 2023, January 29, 2022, and January 30, 2021, we had accrued interest of $42 million, $46 million and $74 million, respectively.

We file a consolidated U.S. federal income tax return, as well as income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by taxing authorities for years before fiscal 2011.

Changes in state, federal and foreign tax laws may increase or decrease our tax contingencies. The timing of the resolution of income tax examinations and controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next twelve months we will receive additional assessments by various taxing authorities or reach resolutions of income tax examinations or controversies in one or more jurisdictions. These assessments, resolutions or law changes could result in changes to our gross unrecognized tax benefits. The actual amount of any changes could vary significantly depending on the ultimate timing and nature of any assessments, resolutions or law changes. An estimate of the amount or range of such changes cannot be made at this time.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.