5.TAXES BASED ON INCOME

The provision for taxes based on income consists of:

	2014			2013			2012
Federal
Current	$	847		$	638		$	563
Deferred	(15		)	81			154

Subtotal federal	832			719			717
State and local
Current	59			42			46
Deferred	11			(10		)	31

Subtotal state and local	70			32			77

Total	$	902		$	751		$	794

A reconciliation of the statutory federal rate and the effective rate follows:

	2014		2013		2012
Statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	1.7	%	0.9	%	2.2	%
Credits	(1.2	)%	(1.3	)%	(1.4	)%
Favorable resolution of issues	(0.4	)%			(0.5	)%
Domestic manufacturing deduction	(0.7	)%	(1.1	)%	(0.5	)%
Other changes, net	(0.3	)%	(0.6	)%	(0.3	)%

	34.1	%	32.9	%	34.5	%

The 2014 effective tax rate differed from the federal statutory rate primarily as a result of the utilization of tax credits, the Domestic Manufacturing Deduction and other changes, partially offset by the effect of state income taxes. The 2013 rate for state income taxes is lower than 2014 and 2012 due to an increase in state tax credits, including the benefit from filing amended returns to claim additional credits. The 2013 benefit from the Domestic Manufacturing Deduction differed from 2014 and 2012 due to additional deductions taken in 2013, as well as the amendment of prior years’ tax returns to claim the additional benefit available in years still under review by the Internal Revenue Service.

The tax effects of significant temporary differences that comprise tax balances were as follows:

	2014			2013
Current deferred tax assets:
Net operating loss and credit carryforwards	$	5		$	4
Compensation related costs	88			103
Other	14			15

Subtotal	107			122
Valuation allowance	(7		)	(9		)

Total current deferred tax assets	100			113

Current deferred tax liabilities:
Insurance related costs	(99		)	(96		)
Inventory related costs	(288		)	(265		)

Total current deferred tax liabilities	(387		)	(361		)

Current deferred taxes	$	(287	)	$	(248	)

Long-term deferred tax assets:
Compensation related costs	$	721		$	464
Lease accounting	129			115
Closed store reserves	50			54
Insurance related costs	77			66
Net operating loss and credit carryforwards	115			103
Other	2			

Subtotal	1,094			802
Valuation allowance	(42		)	(38		)

Total long-term deferred tax assets	1,052			764
Long-term deferred tax liabilities:
Depreciation and amortization	(2,261		)	(2,128		)
Other				(17		)

Total long-term deferred tax liabilities	(2,261		)	(2,145		)

Long-term deferred taxes	$	(1,209	)	$	(1,381	)

At January 31, 2015, the Company had net operating loss carryforwards for state income tax purposes of $1,286. These net operating loss carryforwards expire from 2015 through 2033. The utilization of certain of the Company’s state net operating loss carryforwards may be limited in a given year. Further, based on the analysis described below, the Company has recorded a valuation allowance against some of the deferred tax assets resulting from its state net operating losses.

At January 31, 2015, the Company had state credit carryforwards of $48, most of which expire from 2015 through 2027. The utilization of certain of the Company’s credits may be limited in a given year. Further, based on the analysis described below, the Company has recorded a valuation allowance against some of the deferred tax assets resulting from its state credits.

At January 31, 2015, the Company had federal net operating loss carryforwards of $54. The net operating loss carryforwards expire from 2030 through 2033. The utilization of certain of the Company’s federal net operating loss carryforwards may be limited in a given year. Further, based on the analysis described below, the Company has not recorded a valuation allowance against the deferred tax assets resulting from its federal net operating losses.

At January 31, 2015, the Company had federal capital loss carryforwards of $25. These capital loss carryforwards expire at the end of 2015. The utilization of certain of the Company’s capital loss carryforwards may be limited in a given year. Further, based on the analysis described below, the Company has recorded a valuation allowance against substantially all of the deferred tax assets resulting from its capital losses.

The Company regularly reviews all deferred tax assets on a tax filer and jurisdictional basis to estimate whether these assets are more likely than not to be realized based on all available evidence. This evidence includes historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies. Projected future taxable income is based on expected results and assumptions as to the jurisdiction in which the income will be earned. The expected timing of the reversals of existing temporary differences is based on current tax law and the Company’s tax methods of accounting. Unless deferred tax assets are more likely than not to be realized, a valuation allowance is established to reduce the carrying value of the deferred tax asset until such time that realization becomes more likely than not. Increases and decreases in these valuation allowances are included in “Income tax expense” in the Consolidated Statements of Operations.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, including positions impacting only the timing of tax benefits, is as follows:

	2014			2013			2012
Beginning balance	$	325		$	299		$	310
Additions based on tax positions related to the current year	17			23			45
Reductions based on tax positions related to the current year	(6		)	(10		)	(9		)
Additions for tax positions of prior years	9			17			1
Reductions for tax positions of prior years	(36		)	(4		)	(27		)
Settlements	(63		)				(21		)
Ending balance	$	246		$	325		$	299

The Company does not anticipate that changes in the amount of unrecognized tax benefits over the next twelve months will have a significant impact on its results of operations or financial position.

As of January 31, 2015, February 1, 2014 and February 2, 2013, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $90, $98 and $70 respectively.

To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and classified as a component of income tax expense. During the years ended January 31, 2015, February 1, 2014 and February 2, 2013, the Company recognized approximately $3, $10 and $(8), respectively, in interest and penalties (recoveries). The Company recorded charges for interest and penalties of approximately $30, $41 and $33 as of January 31, 2015, February 1, 2014 and February 2, 2013, respectively.

As of January 31, 2015, the Internal Revenue Service had concluded its examination of our 2008 and 2009 federal tax returns and is currently auditing tax years 2010 through 2013. The 2010 and 2011 audits are expected to be completed in 2015.

On September 13, 2013, the U.S. Department of the Treasury and Internal Revenue Service released final tangible property regulations that provide guidance on the tax treatment regarding the deduction and capitalization of expenditures related to tangible property. These regulations are effective for tax years beginning on or after January 1, 2014 and will be implemented by the Company on its 2014 tax return to be filed no later than October 15, 2015. The Company believes adoption of these regulations will not have an effect on net income and will not have a material effect on the reclassification between long-term deferred tax liabilities and current income tax liabilities.