Income Taxes

The following table provides a reconciliation of our effective tax rate from the federal statutory tax rate for the fiscal years ended October 31, 2017, 2016, and 2015 ($ amounts in thousands):



	2017				2016				2015
	$		%*		$		%*		$		%*
Federal tax provision at statutory rate	285,009		35.0		206,159		35.0		187,447		35.0
State tax provision, net of federal benefit	34,656		4.3		26,970		4.6		21,947		4.1
Domestic production activities deduction	(12,835	)	(1.6	)	(16,874	)	(2.9	)	(12,284	)	(2.3	)
Other permanent differences	(1,468	)	(0.2	)	(7,037	)	(1.2	)	(7,821	)	(1.5	)
Reversal of accrual for uncertain tax positions	(3,981	)	(0.5	)	(11,177	)	(1.9	)	(15,331	)	(2.9	)
Accrued interest on anticipated tax assessments	984		0.1		1,964		0.3		2,588		0.5
Increase in unrecognized tax benefits	—		—		2,052		0.3		3,214		0.6
Valuation allowance — recognized	—		—		1,018		0.2		3,681		0.7
Valuation allowance — reversed	(32,154	)	(3.9	)	—		—		(16,323	)	(3.0	)
Other	8,605		1.1		3,857		0.7		5,277		1.0
Income tax provision*	278,816		34.2		206,932		35.1		172,395		32.2



*	Due to rounding, amounts may not add.

We currently operate in 20 states and are subject to various state tax jurisdictions. We estimate our state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction, and our ability to utilize certain tax-saving strategies. Based on our estimate of the allocation of income or loss among the various taxing jurisdictions and changes in tax regulations and their impact on our tax strategies, we estimated our rate for state income taxes will be 6.5% in fiscal 2017. Our state income tax rate was 7.1% and 6.3% in fiscal 2016 and 2015, respectively.

The following table provides information regarding the provision (benefit) for income taxes for each of the fiscal years ended October 31, 2017, 2016, and 2015 (amounts in thousands):



	2017		2016		2015
Federal	$	278,095	$	189,170	$	181,819
State	721		17,762		(9,424		)
	$	278,816	$	206,932	$	172,395

Current	$	93,106	$	186,662	$	122,953
Deferred	185,710		20,270		49,442
	$	278,816	$	206,932	$	172,395

The components of income taxes payable at October 31, 2017 and 2016 are set forth below (amounts in thousands):



	2017		2016
Current	$	33,100	$	62,782
Deferred	24,409
	$	57,509	$	62,782

The following table provides a reconciliation of the change in the unrecognized tax benefits for the years ended October 31, 2017, 2016, and 2015 (amounts in thousands):



	2017			2016			2015
Balance, beginning of year	$	30,272		$	51,889		$	58,318
Increase in benefit as a result of tax positions taken in prior years	1,575			8,110			16,802
Increase in benefit as a result of tax positions taken in current year	431			694			9,005
Decrease in benefit as a result of settlements	(9,174		)	(28,976		)	(31,013		)
Decrease in benefit as a result of lapse of statute of limitations	(6,111		)	(1,445		)	(1,223		)
Balance, end of year	$	16,993		$	30,272		$	51,889

The statute of limitations has expired on our federal tax returns for fiscal years through 2011 and our fiscal year 2013.

Our unrecognized tax benefits are included in the current portion of “Income taxes payable” on our Consolidated Balance Sheets. If these unrecognized tax benefits reverse in the future, they would have a beneficial impact on our effective tax rate at that time. During the next 12 months, it is reasonably possible that the amount of unrecognized tax benefits will change, but we are not able to provide a range of such change. The anticipated changes will be principally due to the expiration of tax statutes, settlements with taxing jurisdictions, increases due to new tax positions taken, and the accrual of estimated interest and penalties.

The amounts accrued for interest and penalties are included in the current portion of “Income taxes payable” on our Consolidated Balance Sheets. The following table provides information as to the amounts recognized in our tax provision, before reduction for applicable taxes and reversal of previously accrued interest and penalties, of potential interest and penalties in the 12-month periods ended October 31, 2017, 2016, and 2015, and the amounts accrued for potential interest and penalties at October 31, 2017 and 2016 (amounts in thousands):



Expense recognized in the Consolidated Statements of Operations and Comprehensive Income
Fiscal year
2017	$	1,513
2016	$	3,426
2015	$	4,454



Accrued at:
October 31, 2017	$	5,179
October 31, 2016	$	9,282

The components of net deferred tax assets and liabilities at October 31, 2017 and 2016 are set forth below (amounts in thousands):



	2017			2016
Deferred tax assets:
Accrued expenses	$	88,527		$	103,134
Impairment charges	84,534			113,950
Inventory valuation differences	80,224			78,483
Stock-based compensation expense	41,712			49,004
Amounts related to unrecognized tax benefits	3,800			8,345
State tax, net operating loss carryforward	48,343			50,031
Other	1,303			6,329
Total assets	348,443			409,276
Deferred tax liabilities:
Capitalized interest	76,914			85,873
Deferred income	261,286			52,406
Expenses taken for tax purposes not for book	9,878			47,045
Depreciation	4,694			5,440
Deferred marketing	20,080			18,945
Total liabilities	372,852			209,709
Net deferred tax (liabilities)/assets before valuation allowances	(24,409		)	199,567
Cumulative valuation allowance - state				(32,154		)
Net deferred tax (liabilities)/assets	$	(24,409	)	$	167,413

In accordance with GAAP, we assess whether a valuation allowance should be established based on our determination of whether it is more-likely-than-not that some portion or all of the deferred tax assets would not be realized. At October 31, 2017 and 2016, we determined that it was more-likely-than-not that our deferred assets would be realized for federal purposes. Accordingly, at October 31, 2017 and 2016, we did not record any valuation allowances against our federal deferred tax assets.

We file tax returns in the various states in which we do business. Each state has its own statutes regarding the use of tax loss carryforwards. Some of the states in which we do business do not allow for the carryforward of losses, while others allow for carryforwards for 5 years to 20 years.

For state tax purposes, we establish valuation allowances for deferred tax assets in certain jurisdictions where it is more-likely-than-not that the deferred tax asset would not be realized. Due to past and projected losses in certain jurisdictions where we did not have carryback potential and/or could not sufficiently forecast future taxable income, we recognized a net cumulative valuation allowance against our state deferred tax assets at October 31, 2016, as shown above. During fiscal 2016, and 2015, we recognized new valuation allowances of $1.0 million, and $3.7 million, respectively. We did not recognize any new valuation allowances in fiscal 2017. During fiscal 2017 and 2015, due to improved operating results, we reversed $32.2 million and $16.3 million of state deferred tax asset valuation allowances, respectively. No state deferred tax asset valuation allowances were reversed in fiscal 2016.

Subsequent event

In December 2017, Congress passed a federal tax reform bill. If signed into law by the President, this bill will change many longstanding foreign and domestic corporate and individual tax rules, as well as rules pertaining to the taxation of employee compensation and benefits. The legislation includes significant changes impacting domestic corporate taxpayers. We are currently evaluating the impact such changes would have on our consolidated financial statements and disclosures but preliminarily believe, if signed, it will significantly decrease our effective tax rate.