Income Taxes

12 Months Ended

Jan. 29, 2022

Income Taxes

Income Taxes

NOTE 15—INCOME TAXES

The following is a summary of our income before income taxes, inclusive of our share of equity method investments losses (in thousands):

	YEAR ENDED
	JANUARY 29,		JANUARY 30,		FEBRUARY 1,
	2022		2021		2020
Domestic	$	821,001	$	378,267	$	267,538
Foreign		1,103		(1,854)		1,644
Total	$	822,104	$	376,413	$	269,182

The following is a summary of our income tax expense (in thousands):

	YEAR ENDED
	JANUARY 29,		JANUARY 30,		FEBRUARY 1,
	2022		2021		2020
Current
Federal	$	111,975	$	85,708	$	45,985
State		28,141		23,684		10,806
Foreign		363		126		403
Total current tax expense		140,479		109,518		57,194
Deferred
Federal		(3,841)		(2,251)		(7,173)
State		(2,885)		(2,536)		(1,477)
Foreign		(195)		(133)		263
Total deferred tax benefit		(6,921)		(4,920)		(8,387)
Total income tax expense	$	133,558	$	104,598	$	48,807

A reconciliation of the federal statutory tax rate to our effective tax rate is as follows:

	YEAR ENDED
	JANUARY 29,		JANUARY 30,		FEBRUARY 1,
	2022		2021		2020
Provision at federal statutory tax rate	21.0	%	21.0	%	21.0	%
State income taxes—net of federal tax impact	2.4		4.2		2.5
Non-deductible stock-based compensation	0.6		6.5		—
Tax rate adjustments and other	0.2		0.3		0.4
Stock compensation—excess benefits	(8.0)		(4.9)		(6.6)
Valuation allowance	—		0.1		—
Other permanent items	—		0.6		0.8
Effective tax rate	16.2	%	27.8	%	18.1	%

We have recorded deferred tax assets and liabilities based upon estimates of their realizable value, such estimates are based upon likely future tax consequences. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, we record a valuation allowance.

Significant components of our deferred tax assets and liabilities are as follows (in thousands):

	JANUARY 29,		JANUARY 30,
	2022		2021
Non-current deferred tax assets (liabilities)
Lease liabilities	$	317,971	$	275,517
Stock-based compensation		26,205		24,922
Accrued expenses		19,572		21,308
Merchandise inventories		10,318		9,097
Deferred lease credits		4,854		4,917
Net operating loss carryforwards		2,884		1,988
Deferred revenue		1,739		635
Convertible senior notes		779		914
Other		1,152		2,269
Non-current deferred tax assets—net		385,474		341,567
Valuation allowance		(1,959)		(2,049)
Non-current deferred tax assets	$	383,515	$	339,518
Property and equipment	$	(154,821)	$	(147,143)
Lease right-of-use assets		(146,368)		(122,306)
Tradename, trademarks and intangibles		(12,603)		(10,349)
Prepaid expense and other		(11,077)		(8,010)
State benefit		(1,803)		(1,786)
Non-current deferred tax liabilities		(326,672)		(289,594)
Total net non-current deferred tax assets	$	56,843	$	49,924

A reconciliation of our valuation allowance against deferred tax assets in certain state and foreign jurisdictions due to historical losses is as follows (in thousands):

	YEAR ENDED
	JANUARY 29,		JANUARY 30,		FEBRUARY 1,
	2022		2021		2020
Balance at beginning of fiscal year	$	2,049	$	1,007	$	1,623
Net changes in deferred tax assets and liabilities		(90)		1,042		(616)
Balance at end of fiscal year	$	1,959	$	2,049	$	1,007

As of January 29, 2022, we had state net operating loss carryovers of $20 million and foreign net operating loss carryovers of $13 million. The state net operating loss carryovers will begin to expire in 2022, and the foreign net operating loss carryovers will begin to expire in 2023. Internal Revenue Code Section 382 and similar state rules place a limitation on the amount of taxable income which can be offset by net operating loss carryforwards after a change in ownership (generally greater than 50% change in ownership). We cannot give any assurances that it will not undergo an ownership change in the future resulting in further limitations on utilization of net operating losses.

A reconciliation of the exposures related to unrecognized tax benefits is as follows (in thousands):

	YEAR ENDED
	JANUARY 29,		JANUARY 30,		FEBRUARY 1,
	2022		2021		2020
Balance at beginning of fiscal year	$	8,456	$	8,514	$	8,459
Gross increases (decreases)—prior period tax positions		(143)		(129)		(2)
Gross increases—current period tax positions		933		690		438
Reductions based on the lapse of the applicable statutes of limitations		(642)		(619)		(381)
Balance at end of fiscal year	$	8,604	$	8,456	$	8,514

As of January 29, 2022, $7.9 million of our unrecognized tax benefits would reduce income tax expense and the effective tax rate, if recognized. The remaining unrecognized tax benefits would offset other deferred tax assets, if recognized. In October 2017, we filed an amended federal tax return claiming a $5.4 million refund, however, no income tax benefit has been recorded in any fiscal year given the technical nature and amount of the refund claim. An income tax benefit related to this refund claim could be recorded in a future period upon settlement with the respective taxing authority. As of January 29, 2022, we have $5.9 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months.

We account for interest and penalties related to exposures as a component of income tax expense. We had interest accruals of $0.3 million and $0.5 million associated with exposures as of January 29, 2022 and January 30, 2021, respectively.

We are subject to taxation in the United States and various states and foreign jurisdictions. As of January 29, 2022, we are subject to examination by the tax authorities for fiscal 2017 through fiscal 2020. With few exceptions, as of January 29, 2022, we are no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before fiscal 2017.