Income Taxes

12 Months Ended

Feb. 01, 2020

The provision for income taxes was comprised of the following:



(In thousands)	2019		2018		2017
Current:
U.S. Federal	$	15,495	$	35,025	$	63,743
U.S. State and local	7,215		10,341		9,201
Total current tax expense	22,710		45,366		72,944
Deferred:
U.S. Federal	48,613		5,300		28,336
U.S. State and local	3,761		53		4,242
Total deferred tax expense	52,374		5,353		32,578
Income tax provision	$	75,084	$	50,719	$	105,522

On December 22, 2017, the President of the United States signed into law the Tax Cut and Jobs Act (“TCJA”). The TCJA significantly changed U.S. tax law, including permanently lowering the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, expanding the disallowance of deductions for executive compensation and accelerating tax depreciation for certain assets placed in service after September 27, 2017.

In 2017, we estimated the effects of the corporate income tax rate reduction on our net deferred tax assets resulting in the provisional recognition of an additional $4.5 million of income tax expense in our consolidated statements of operations and comprehensive income.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. As noted above, we recorded the provisional tax impacts of the TCJA on existing current and deferred tax amounts in 2017. The ultimate impact differed from those provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions we made, and additional regulatory guidance that was issued. During the third quarter of 2018, we made approximately $0.6 million in adjustments to our previously recorded provisional amounts related to the TCJA. During the fourth quarter of 2018, we finalized our estimate related to the TCJA and the adjustment was immaterial.

Net deferred tax assets fluctuated by items that are not reflected in deferred tax expense in the above table in 2019 and 2017. Due to the adoption of ASU 2016-02, Leases (Topic 842), net deferred tax assets decreased by $0.1 million in 2019. In 2017, net deferred tax assets increased by $0.1 million as a result of ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.

Reconciliation between the statutory federal income tax rate and the effective income tax rate was as follows:



	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	33.7	%
Effect of:
State and local income taxes, net of federal tax benefit	2.7		4.0		3.0
Executive compensation limitations - permanent difference	0.4		0.7		—
Provisional effect of the TCJA	—		(0.3	)	1.5
Work opportunity tax and other employment tax credits	(0.8	)	(1.4	)	(1.0	)
Excess tax detriment (benefit) from share-based compensation	0.4		0.4		(1.3	)
Other, net	(0.1	)	—		(0.2	)
Effective income tax rate	23.6	%	24.4	%	35.7	%

Since the TCJA rate reduction was effective on January 1, 2018, our 2017 federal statutory tax rate was a blended rate of 33.7%.

In 2017, we adopted ASU 2016-09. Prior to the adoption of ASU 2016-09, differences between the tax deduction ultimately realized from an equity award and the deferred tax asset recognized as compensation cost were generally credited (“excess tax benefits”) or charged (“deficiencies”) to equity. Under ASU 2016-09, all tax effects of share-based compensation, including excess tax benefits and tax deficiencies, are recognized in income tax expense. In 2019 and 2018, we recognized net tax deficiencies which increased income tax expense by $1.3 million and $1.0 million, respectively. In 2017, we recognized net excess tax benefits which reduced income tax expense by $4.3 million.

In 2019, we adopted ASU 2016-02 which requires the recognition of right-of-use assets and lease liabilities. The recognition of the right-of-use assets and lease liabilities resulted in the establishment of a new deferred tax liability and deferred tax asset.

Income tax payments and refunds were as follows:



(In thousands)	2019			2018			2017
Income taxes paid	$	29,375		$	59,691		$	99,693
Income taxes refunded	(2,313		)	(474		)	(888		)
Net income taxes paid	$	27,062		$	59,217		$	98,805

Deferred taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax, including income tax uncertainties. Significant components of our deferred tax assets and liabilities were as follows:



(In thousands)	February 1, 2020			February 2, 2019
Deferred tax assets:
Lease liabilities, net of lease incentives	$	327,499		$	—
Depreciation and fixed asset basis differences	37,430			10,497
Uniform inventory capitalization	22,611			18,454
Workers’ compensation and other insurance reserves	21,013			20,841
Compensation related	16,378			17,218
Accrued operating liabilities	3,674			1,316
State tax credits, net of federal tax benefit	3,495			3,856
Accrued state taxes	3,027			3,416
Accrued rent	—			16,208
Other	13,907			11,767
Valuation allowances, net of federal tax benefit	(2,674		)	(2,940		)
Total deferred tax assets	446,360			100,633
Deferred tax liabilities:
Right-of-use assets, net of amortization	305,091			—
Accelerated depreciation and fixed asset basis differences	100,187			66,016
Synthetic lease obligation	34,485			—
Lease construction reimbursements	18,920			13,917
Deferred gain on like-kind exchange	15,382			—
Prepaid expenses	5,039			4,285
Workers’ compensation and other insurance reserves	3,507			2,477
Other	7,597			5,305
Total deferred tax liabilities	490,208			92,000
Net deferred tax (liabilities) assets	$	(43,848	)	$	8,633

Our deferred tax assets and deferred tax liabilities, netted by tax jurisdiction, are summarized in the table below:



(In thousands)	February 1, 2020			February 2, 2019
U.S. Federal	$	(48,610	)	$	96
U.S. State and local	4,762			8,537
Net deferred tax (liabilities) assets	(43,848		)	8,633

We have the following income tax loss and credit carryforwards at February 1, 2020 (amounts are shown net of tax excluding the federal income tax effect of the state and local items):



(In thousands)
U.S. State and local:
State net operating loss carryforwards	$	48	Expires predominately during fiscal years 2020 - 2039
California enterprise zone credits	4,103		Predominately expires fiscal year 2023
Other state credits	320		Expires fiscal years through 2025
Total income tax loss and credit carryforwards	$	4,471

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for 2019, 2018, and 2017:



(In thousands)	2019			2018			2017
Unrecognized tax benefits - beginning of year	$	11,986		$	11,673		$	13,121
Gross increases - tax positions in current year	976			1,649			361
Gross increases - tax positions in prior period	1,031			1,025			1,329
Gross decreases - tax positions in prior period	(2,333		)	(1,827		)	(1,385		)
Settlements	(484		)	403			(319		)
Lapse of statute of limitations	(416		)	(937		)	(1,434		)
Unrecognized tax benefits - end of year	$	10,760		$	11,986		$	11,673

At the end of 2019 and 2018, the total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate is $8.4 million and $9.4 million, respectively, after considering the federal tax benefit of state and local income taxes of $1.4 million and $1.8 million, respectively. Unrecognized tax benefits of $1.0 million and $0.8 million in 2019 and 2018, respectively, relate to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The uncertain timing items could result in the acceleration of the payment of cash to the taxing authority to an earlier period.

We recognized an expense (benefit) associated with interest and penalties on unrecognized tax benefits of approximately $(1.1) million, $(0.7) million, and $0.1 million during 2019, 2018, and 2017, respectively, as a component of income tax expense. The amount of accrued interest and penalties recognized in the accompanying consolidated balance sheets at February 1, 2020 and February 2, 2019 was $4.3 million and $5.4 million, respectively.

We are subject to U.S. federal income tax, and income tax of multiple state and local jurisdictions. The statute of limitations for assessments on our federal income tax returns for periods prior to 2016 has lapsed. In addition, the state income tax returns filed by us are subject to examination generally for periods beginning with 2006, although state income tax carryforward attributes generated prior to 2006 and non-filing positions may still be adjusted upon examination. We have various state returns in the process of examination or administrative appeal.

We have estimated the reasonably possible expected net change in unrecognized tax benefits through January 30, 2021, based on expected cash and noncash settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations for unrecognized tax benefits. The estimated net decrease in unrecognized tax benefits for the next 12 months is approximately $4.0 million. Actual results may differ materially from this estimate.