TAXES BASED ON INCOME

12 Months Ended

Jan. 29, 2022

TAXES BASED ON INCOME

TAXES BASED ON INCOME

4. TAXES BASED ON INCOME

The provision for taxes based on income consists of:

	2021		2020		2019
Federal
Current	$	349	$	577	$	454
Deferred		(46)		75		(50)
Subtotal federal		303		652		404
State and local
Current		67		133		70
Deferred		15		(3)		(5)
Subtotal state and local		82		130		65
Total	$	385	$	782	$	469

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

	2021		2020		2019
Statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal tax benefit	3.2		3.0		2.6
Credits	(1.3)		(0.7)		(1.5)
Resolution of tax audit examinations	(3.1)		—		(0.1)
Excess tax benefits from share-based payments	(1.3)		(0.8)		(0.2)
Impairment losses attributable to noncontrolling interest	—		—		1.2
Non-deductible executive compensation	0.6		0.3		0.3
Other changes, net	(0.3)		0.4		0.4
	18.8	%	23.2	%	23.7	%

The Company’s effective income tax rates were 18.8% in 2021 and 23.2% in 2020.  The 2021 tax rate differed from the federal statutory rate primarily due to a discrete benefit of $47 which was primarily from the favorable outcome of income tax audit examinations covering multiple years, the benefit from share-based payments and the utilization of tax credits, partially offset by the effect of state income taxes.

The 2020 tax rate differed from the federal statutory rate primarily due to the effect of state income taxes, partially offset by the utilization of tax credits and deductions.

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.

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

	2021		2020
Deferred tax assets:
Compensation related costs	$	560	$	766
Lease liabilities		1,926		1,932
Closed store reserves		46		38
Net operating loss and credit carryforwards		98		86
Deferred income		126		149
Allowance for uncollectible receivables		36		23
Other		25		46
Subtotal		2,817		3,040
Valuation allowance		(72)		(53)
Total deferred tax assets		2,745		2,987
Deferred tax liabilities:
Depreciation and amortization		(2,006)		(2,115)
Operating lease assets		(1,790)		(1,794)
Insurance related costs		(54)		—
Inventory related costs		(310)		(264)
Equity investments in excess of tax basis		(147)		(356)
Total deferred tax liabilities		(4,307)		(4,529)
Deferred taxes	$	(1,562)	$	(1,542)

At January 29, 2022, the Company had net operating loss carryforwards for state income tax purposes of $1,259. These net operating loss carryforwards expire from 2022 through 2041.  The utilization of certain of the Company’s state net operating loss carryforwards may be limited in a given year. Further, the Company has recorded a valuation allowance against certain deferred tax assets resulting from its state net operating losses.

At January 29, 2022, the Company had state credit carryforwards of $37. These state credit carryforwards expire from 2022 through 2035.  The utilization of certain of the Company’s credits may be limited in a given year. Further, the Company has recorded a valuation allowance against certain 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 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 January 29, 2022, January 30, 2021 and February 1, 2020 the total valuation allowance was $72, $53 and $55, 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:

	2021		2020		2019
Beginning balance	$	193	$	174	$	174
Additions based on tax positions related to the current year		10		7		13
Additions for tax positions of prior years		9		16		8
Reductions for tax positions of prior years		(108)		—		(1)
Settlements		—		—		(19)
Lapse of statute		(4)		(4)		(1)
Ending balance	$	100	$	193	$	174

As of January 29, 2022, January 30, 2021 and February 1, 2020, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $73, $85 and $74 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 29, 2022, January 30, 2021 and February 1, 2020, the Company recognized approximately $(15), $7 and $7, respectively, in interest and penalties (recoveries). The Company had accrued approximately $22, $38 and $30 for the payment of interest and penalties as of January 29, 2022, January 30, 2021 and February 1, 2020.

As of January 29, 2022, the Internal Revenue Service had concluded its examination of all federal tax returns up to and including the return for the year ended February 3, 2018.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, includes measures to assist companies in response to the COVID-19 pandemic. These measures include deferring the due dates of tax payments and other changes to income and non-income-based tax laws. As permitted under the CARES Act, the Company deferred the remittance of the employer portion of the social security tax. The social security tax provision requires that the deferred employment tax be paid over two years, with half of the amount required to be paid by December 31, 2021 and the other half to be paid by December 31, 2022. During 2020, the Company deferred the employer portion of social security tax of $622. Of the total, $311 was paid during 2021 and $311 is included in “Other current liabilities” in the Company’s Consolidated Balance Sheets.