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TAXES BASED ON INCOME

12 Months Ended

Feb. 01, 2020

5.	TAXES BASED ON INCOME

The provision for taxes based on income consists of:


	2019		2018		2017
Federal
Current	$	454	$	775	$	309
Deferred		(50)		(3)		(747)

Subtotal federal		404		772		(438)

State and local
Current		70		108		15
Deferred		(5)		20		18

Subtotal state and local		65		128		33

Total	$	469	$	900	$	(405)

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


	2019		2018		2017
Statutory rate	21.0	%	21.0	%	33.7	%
State income taxes, net of federal tax benefit	2.6		2.6		1.7
Credits	(1.5)		(1.3)		(2.5)
Resolution of issues	(0.1)		0.5		—
Domestic manufacturing deduction	—		—		(1.1)
Excess tax benefits from share-based payments	(0.2)		(0.3)		(0.4)
Effect of Tax Cuts and Jobs Act	—		—		(60.8)
Impairment of goodwill	—		—		2.3
Impairment losses attributable to noncontrolling interest	1.2		—		—
Other changes, net	0.7		0.1		(0.2)

	23.7	%	22.6	%	(27.3)	%

The 2019 tax rate differed from the federal statutory rate primarily due to the effect of state income taxes and Lucky’s Market losses attributable to the noncontrolling interest which reduced pre-tax income but did not impact tax expense, partially offset by the utilization of tax credits and deductions.

The 2018 tax rate differed from the federal statutory rate primarily due to the effect of state income taxes and an IRS audit that resulted in a reduction of prior year tax deductions at pre-Tax Act rates and an increase in future tax deductions at post-Tax Act rates. These 2018 items were partially offset by the utilization of tax credits and deductions, the remeasurement of uncertain tax positions and adjustments to provisional amounts that increased prior year deductions at pre-Tax Act rates and decreased future deductions at post-Tax Act rates.

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


	2019		2018
Deferred tax assets:
Compensation related costs	$	406	$	350
Lease liabilities		1,872		81
Closed store reserves		55		41
Net operating loss and credit carryforwards		100		110
Deferred Income		172		84
Allowance for uncollectible receivables		93		18
Other		—		9

Subtotal		2,698		693
Valuation allowance		(55)		(54)

Total deferred tax assets		2,643		639

Deferred tax liabilities:
Depreciation and amortization		(1,942)		(1,850)
Operating lease assets		(1,782)		—
Insurance related costs		(28)		(38)
Inventory related costs		(252)		(257)
Equity investments in excess of tax basis		(94)		(56)
Other		(11)		—

Total deferred tax liabilities		(4,109)		(2,201)

Deferred taxes	$	(1,466)	$	(1,562)

At February 1, 2020, the Company had net operating loss carryforwards for state income tax purposes of $1,197. These net operating loss carryforwards expire from 2020 through 2039. 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 1, 2020, the Company had state credit carryforwards of $47, most of which expire from 2020 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.

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 with respect 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 1, 2020, February 2, 2019 and February 3, 2018 the total valuation allowance was $55, $54 and $62, 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:


	2019		2018		2017
Beginning balance	$	174	$	180	$	177
Additions based on tax positions related to the current year		13		7		11
Reductions based on tax positions related to the current year		—		(1)		(1)
Additions for tax positions of prior years		8		23		6
Reductions for tax positions of prior years		(1)		(22)		(8)
Settlements		(19)		(10)		—
Lapse of statute		(1)		(3)		(5)
Ending balance	$	174	$	174	$	180

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 1, 2020, February 2, 2019 and February 3, 2018 the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $74, $72 and $88, 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 1, 2020, February 2, 2019 and February 3, 2018, the Company recognized approximately $7, $2 and $8, respectively, in interest and penalties. The Company had accrued approximately $30, $30 and $28 for the payment of interest and penalties as of February 1, 2020, February 2, 2019 and February 3, 2018.

As of February 1, 2020, the Internal Revenue Service had concluded its examination of all federal tax returns up to and including the return for the year ended January 30, 2016.