Income Taxes

12 Months Ended

Jan. 29, 2022

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

Deferred income taxes consist of the following:

(Dollars in Millions)	January 29, 2022	January 30, 2021
Deferred tax liabilities:
Property and equipment	$646	$718
Lease assets	974	821
Merchandise inventories	24	46
Total deferred tax liabilities	1,644	1,585
Deferred tax assets:
Lease obligations	1,267	1,093
Accrued and other liabilities, including stock-based compensation	214	244
Federal benefit on state tax reserves	30	30
Valuation allowance	(34)	(42)
Total deferred tax assets	1,477	1,325
Net deferred tax liability	$167	$260

Deferred tax assets included in other long-term assets totaled $39 million as of January 29, 2022 and $42 million as of January 30, 2021. As of January 29, 2022, the Company had state net operating loss carryforwards, net of valuation allowances, of $46 million, and state credit carryforwards, net of valuation allowances, of $8 million, which will expire between 2022 and 2042. As of January 30, 2021, state net operating loss carryforwards, net of valuation allowances, were $88 million, and state credit carryforwards, net of valuation allowances, were $6 million.

The components of the Provision (benefit) for income taxes were as follows:

(Dollars in Millions)	2021	2020	2019
Current federal	$311	$(439)	$128
Current state	63	38	31
Deferred federal	(59)	69	60
Deferred state	(34)	(51)	(9)
Provision (benefit) for income taxes	$281	$(383)	$210

On March 27, 2020, the CARES Act was enacted and signed into law. The CARES Act modified a number of corporate tax provisions, such as the limitations on the deduction of business interest expense under Section 163(j) as well as allowing net operating loss carryovers and carrybacks to fully offset taxable income for years beginning before 2021. Additionally, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding tax years to generate a refund of previously paid income taxes.

The effective tax rate differs from the amount that would be provided by applying the statutory U.S. corporate tax rate due to the following items:

	2021	2020	2019
Provision at statutory rate	21.0%	21.0%	21.0%
State income taxes, net of federal tax benefit	2.6	2.1	3.1
Federal NOL carryback	(0.3)	66.0	—
Uncertain tax positions	0.6	(19.4)	0.6
Federal tax credits	(1.1)	0.4	(1.2)
Other	0.3	0.1	(0.2)
Effective tax rate	23.1%	70.2%	23.3%

The effective tax rate for the year ended January 29, 2022, was less than the effective tax rate for the year ended January 30, 2021, primarily due to the federal net operating loss (“NOL”) generated in 2020 that could be carried back up to five taxable years. The federal NOL incurred for the year ended January 30, 2021 was carried back to tax years 2015 – 2017. As a result, for the year ended January 30, 2021, the Company recorded an income tax benefit of $474 million due to the federal income tax rate of 21% in tax year 2020 versus 35% in tax years 2015 – 2017.

We have analyzed filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. The federal returns subject to examination are the 2012 through 2021 tax years. With respect to state and local jurisdictions, with limited exceptions, the Company is no longer subject to income tax audits for years before 2013. Certain states have proposed adjustments, which we are currently appealing. If we do not prevail on our appeals, we do not anticipate that the adjustments would result in a material change in our financial position.

We assess our income tax positions and record tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates. For those income tax positions where it is more-likely-than-not, based on technical merits, that a tax benefit will be sustained upon the conclusion of an examination, we have recorded the largest amount of tax benefit having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority, assuming that it has full knowledge of all relevant information. For those tax positions which do not meet the more-likely-than-not threshold regarding the ultimate realization of the related tax benefit, no tax benefit has been recorded in the financial statements. In addition, we provide for interest and penalties, as applicable, and record such amounts as a component of the overall income tax provision. A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows:

(Dollars in Millions)	2021	2020
Balance at beginning of year	$298	$135
Increases due to tax positions taken in prior years	12	—
Increases due to tax positions taken in current year	27	177
Decreases due to:
Tax positions taken in prior years	(53)	(9)
Settlements with taxing authorities	(3)	(4)
Lapse of applicable statute of limitations	(5)	(1)
Balance at end of year	$276	$298

Not included in the unrecognized tax benefits reconciliation above are gross unrecognized accrued interest and penalties of $43 million at January 29, 2022 and $42 million at January 30, 2021. Interest and penalty expenses were $3 million in 2021, $18 million in 2020, and $4 million in 2019.

Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $256 million as of January 29, 2022 and $276 million as of January 30, 2021. It is reasonably possible that our unrecognized tax positions may change within the next 12 months, primarily as a result of ongoing audits. While it is possible that one or more of these examinations may be resolved in the next year, it is not anticipated that a significant impact to the unrecognized tax benefit balance will occur.

We have both payables and receivables for income taxes recorded on our balance sheet. Receivables included in other current assets totaled $15 million as of January 29, 2022 and $610 million as of January 30, 2021. Receivables included in other long term assets totaled $300 million as of January 29, 2022 and $232 million as of January 30, 2021. Payables included in current liabilities totaled $106 million as of January 29, 2022 and $10 million as of January 30, 2021.