5.TAXES BASED ON INCOME

The provision for taxes based on income consists of:


	2017		2016		2015
Federal
Current	$	309	$	721	$	723
Deferred		(747)		158		266

Subtotal federal		(438)		879		989

State and local
Current		15		51		37
Deferred		18		27		19

Subtotal state and local		33		78		56

Total	$	(405)	$	957	$	1,045

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


	2017		2016		2015
Statutory rate	33.7	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	1.7	%	1.6	%	1.2	%
Credits	(2.5)	%	(1.1)	%	(1.2)	%
Favorable resolution of issues	—	%	(0.5)	%	(0.2)	%
Domestic manufacturing deduction	(1.1)	%	(0.7)	%	(0.7)	%
Excess tax benefits from share-based payments	(0.4)	%	(1.6)	%	—	%
Effect of Tax Cuts and Jobs Act	(60.8)	%	—	%	—	%
Impairment of Goodwill	2.3	%	—		—
Other changes, net	(0.2)	%	0.1	%	(0.3)	%

	(27.3)	%	32.8	%	33.8	%

The 2017 tax rate differed from the federal statutory rate primarily as a result of re-measuring deferred taxes due to the Tax Cuts and Jobs Act, the Domestic Manufacturing Deduction and other changes, partially offset by non-deductible goodwill impairment charges and the effect of state income taxes. On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act which made changes to the tax code including, but not limited to, reducing the federal statutory corporate tax rate from 35% to 21% and eliminating the domestic manufacturing deduction. GAAP requires the recognition of the impact of tax laws in the period in which they are enacted. The benefit recognized in 2017 from the Tax Cuts and Jobs Act is $922, primarily from the re-measurement of deferred taxes.

On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to finalize the calculations for certain income tax effects of the Tax Cuts and Jobs Act. Under the guidance in SAB 118, the income tax effects, for which the accounting under GAAP is incomplete, are reported as a provisional amount based on a reasonable estimate. The reasonable estimate is subject to adjustment during a "measurement period", not to exceed one year, until the accounting is complete. In accordance with SAB 118, the Company has determined that the net tax benefit of $922 recorded in connection with the Tax Cuts and Jobs Act includes provisional amounts related to depreciation and the application of provisions of the Tax Cuts and Jobs Act related to accelerated depreciation.

The 2015 rate for state income taxes is less than 2017 and 2016 due to filing amended returns to claim additional benefits in years still under review, the favorable resolution of state issues and an increase in state credits.

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


	2017		2016
Current deferred tax assets:
Net operating loss and credit carryforwards	$	—	$	23
Compensation related costs		—		67
Other		—		50

Subtotal		—		140
Valuation allowance		—		(11)

Total current deferred tax assets		—		129

Current deferred tax liabilities:
Insurance related costs		—		(52)
Inventory related costs		—		(328)

Total current deferred tax liabilities		—		(380)

Current deferred taxes	$	—	$	(251)

Long-term deferred tax assets:
Compensation related costs	$	348	$	783
Lease accounting		78		121
Closed store reserves		45		46
Insurance related costs		—		7
Net operating loss and credit carryforwards		146		101
Other		54		1

Subtotal		671		1,059
Valuation allowance		(62)		(39)

Total long-term deferred tax assets		609		1,020

Long-term deferred tax liabilities:
Depreciation and amortization		(1,892)		(2,947)
Insurance related costs		(32)		—
Inventory related costs		(253)		—

Total long-term deferred tax liabilities		(2,177)		(2,947)

Long-term deferred taxes	$	(1,568)	$	(1,927)

The Company adopted ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. The Company adopted the standard in 2017 prospectively and as a result of the implementation the 2017, as compared to 2016, current deferred tax liabilities were reclassified as non-current.

At February 3, 2018, the Company had net operating loss carryforwards for state income tax purposes of $1,578. These net operating loss carryforwards expire from 2018 through 2037. 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 February 3, 2018, the Company had state credit carryforwards of $55, most of which expire from 2018 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 February 3, 2018, the Company had federal net operating loss carryforwards of $20. These net operating loss carryforwards expire from 2034 through 2035. 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.

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. As of February 3, 2018, January 28, 2017 and January 30, 2016, the total valuation allowance was $62, $50 and $52, respectively.

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


	2017		2016		2015
Beginning balance	$	177	$	204	$	246
Additions based on tax positions related to the current year		11		10		11
Reductions based on tax positions related to the current year		(1)		(1)		(11)
Additions for tax positions of prior years		6		3		4
Reductions for tax positions of prior years		(8)		(30)		(27)
Settlements		—		(2)		(17)
Lapse of statute		(5)		(7)		(2)
Ending balance	$	180	$	177	$	204

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 February 3, 2018, January 28, 2017 and January 30, 2016, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $88, $73 and $83 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 February 3, 2018, January 28, 2017 and January 30, 2016, the Company recognized approximately $8, $(1) and $(5), respectively, in interest and penalties (recoveries). The Company had accrued approximately $28, $20 and $25 for the payment of interest and penalties as of February 3, 2018, January 28, 2017 and January 30, 2016.

As of February 3, 2018, the Internal Revenue Service had concluded its examination of our 2012 and 2013 federal tax returns.