Income Taxes

12 Months Ended

Feb. 01, 2020

Recent Legislation

On December 22, 2017, the U.S. government enacted comprehensive tax legislation under the Tax Cuts and Jobs Act (the “Tax Act”), which, among other things lowered the U.S. corporate statutory income tax rate from 35% to 21%, eliminated certain deductible items and added other deductible items for corporations, imposed a tax on unrepatriated foreign earnings and eliminated U.S. taxes on most future foreign earnings. As a result of the Tax Act, the Company recorded a provisional income tax charge of $6.0 million in fiscal 2017 related to the deemed repatriation of accumulated but undistributed earnings of foreign operations and a provisional income tax benefit of $5.3 million related to the re-measurement of the Company’s net deferred tax liability. The tax owed on the Company’s deemed repatriation resulting from the Tax Act is payable in uneven annual installments through 2025. Accordingly, $4.7 million of the tax on undistributed foreign earnings not payable within the next 12 months is presented within other long-term liabilities on the Consolidated Balance Sheet. Additionally, the Tax Act includes a provision designed to tax Global Intangible Low Tax Income (“GILTI”) earned by non-U.S. corporate subsidiaries of large U.S. shareholders starting in 2018. The Company has elected to account for any future GILTI tax liabilities as period costs and will expense those liabilities in the period incurred.

Provision for Income Taxes

The components of the provision for income taxes are as follows for the fiscal years presented (in thousands):


	2019		2018		2017
Current:
Federal	$	87,263	$	94,729	$	114,443
State	24,139		22,585		20,996
Total current provision	111,402		117,314		135,439
Deferred:
Federal	(606)		(3,943)		38,805
State	(554)		(1,315)		3,648
Total deferred provision	(1,160)		(5,258)		42,453
Total provision	$	110,242	$	112,056	$	177,892

The Company’s effective income tax rate differs from the federal statutory rate as follows for the fiscal years presented:


	2019		2018		2017
Federal statutory rate	21.0	%	21.0	%	33.7	%
State tax, net of federal benefit	4.6	%	3.8	%	3.3	%
Valuation allowance	—	%	—	%	(0.8)	%
Other permanent items	1.4	%	1.1	%	(0.7)	%
Effective income tax rate	27.0	%	25.9	%	35.5	%

Components of deferred tax assets (liabilities) consist of the following as of the end of the fiscal years presented (in thousands):


	2019		2018
Operating lease liabilities	$	756,660	$	—
Inventory	43,499		35,487
Employee benefits	38,554		33,591
Deferred rent	—		27,648
Stock-based compensation	19,494		19,005
Gift cards	14,044		14,458
Deferred revenue currently taxable	2,450		7,263
Store closing expense	119		1,178
Other accrued expenses not currently deductible for tax purposes	6,343		5,895
Net operating loss carryforward	1,207		2,056
Non income-based tax reserves	3,675		5,464
Capital loss carryforward	922		922
Uncertain income tax positions	905		1,218
Insurance	2,175		2,298
Other	924		120
Total deferred tax assets	890,971		156,603
Operating lease assets	(597,553)		—
Property and equipment	(232,832)		(115,726)
Inventory valuation	(40,049)		(26,871)
Intangibles	(7,518)		(5,068)
Prepaid expenses	(3,928)		(3,723)
Other	(3,866)		(3,748)
Total deferred tax liabilities	(885,746)		(155,136)
Net deferred tax asset	$	5,225	$	1,467

The deferred tax asset from net operating loss carryforwards of $1.2 million represents approximately $2.8 million of federal net operating losses, which expire in 2036, and $9.9 million of state net operating losses, which expire in 2034. In 2019, of the $5.2 million net deferred tax asset, approximately $14.4 million is included within other long-term assets and approximately $9.2 million is included within other long-term liabilities on the Consolidated Balance Sheet. In 2018, of the $1.5 million net deferred tax asset, $13.2 million was included within other long-term assets and $11.8 million was included within other long-term liabilities.

The Company does not provide for deferred taxes on the excess of the financial reporting basis over the tax basis related to its investments in foreign subsidiaries. It is the Company’s intention to permanently reinvest the earnings from foreign subsidiaries outside the United States. Under the Tax Act, the associated transition tax resulted in the elimination of the excess of the amount of financial reporting basis over the tax basis in the foreign subsidiaries and subjected $66.6 million of undistributed foreign earnings to tax. An actual repatriation from the Company’s international subsidiaries could still be subject to additional foreign withholding taxes and U.S. state taxes. The Company does not anticipate the need to repatriate funds to the United States to satisfy domestic liquidity needs and accordingly does not provide for foreign withholding taxes and U.S. state taxes.

As of February 1, 2020, the Company’s total liability for uncertain tax positions, including related interest and penalties, was approximately $4.3 million.

Unrecognized Tax Benefits

The following table provides a reconciliation of the Company’s total balance of unrecognized tax benefits, excluding interest and penalties (in thousands):


	2019		2018		2017
Beginning of fiscal year	$	4,318	$	8,047	$	8,293
Increases as a result of tax positions taken in a prior period	422		456		124
Decreases as a result of tax positions taken in a prior period	(1,532)		(411)		(142)
Decreases as a result of settlements during the current period	(422)		(2,977)		(228)
Reductions as a result of a lapse of statute of limitations during the current period	—		(797)		—
End of fiscal year	$	2,786	$	4,318	$	8,047

The balance at February 1, 2020 includes $2.2 million of unrecognized tax benefits that would impact our effective tax rate if recognized. The Company recognizes accrued interest and penalties from unrecognized tax benefits in income tax expense.

As of February 1, 2020, the liability for uncertain tax positions includes $1.5 million for the accrual of interest. During fiscal 2019, 2018 and 2017, the Company recorded $0.3 million, $0.3 million and $0.4 million, respectively, for the accrual of interest and penalties in the Consolidated Statements of Income. The Company has ongoing federal, state and local examinations, and it is possible that these examinations may be resolved within 12 months. Due to the potential for resolution of these examinations, and the expiration of various statutes of limitation, it is reasonably possible that $2.0 million of the Company’s gross unrecognized tax benefits and interest at February 1, 2020 could be recognized within the next 12 months. The Company does not anticipate that changes in its unrecognized tax benefits will have a material impact on the Consolidated Statements of Income during fiscal 2020.

Audits

The Company participates in the Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”). As part of CAP, tax years are audited on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. The IRS has completed examinations of 2017 and all prior tax years. The Company is no longer subject to examination in any of its major state jurisdictions for years prior to 2015.