Income Taxes

12 Months Ended

Jan. 28, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesCurrent income tax expense represents the amounts expected to be reported on the Company’s income tax returns, and deferred tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the

enacted tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.

The following table provides the components of the Company’s provision for income taxes for 2022, 2021 and 2020:

	2022		2021		2020
	(in millions)
Current:
U.S. Federal	$	180	$	249	$	178
U.S. State	48		53		52
Non-U.S.	8		4		10
Total	236		306		240
Deferred:
U.S. Federal	10		24		6
U.S. State	—		10		5
Non-U.S.	5		8		6
Total	15		42		17
Provision for Income Taxes	$	251	$	348	$	257

The non-U.S. component of pre-tax income, arising principally from overseas operations, was income of $94 million, $110 million and $67 million for 2022, 2021 and 2020, respectively.

The following table provides the reconciliation between the statutory federal income tax rate and the effective tax rate for 2022, 2021 and 2020:

	2022		2021		2020
Federal Income Tax Rate	21.0	%	21.0	%	21.0	%
State Income Taxes, Net of Federal Income Tax Effect	4.1	%	4.2	%	4.9	%
Impact of Non-U.S. Operations	0.1	%	0.1	%	0.5	%
Share-based Compensation	(0.7	%)	(0.7	%)	0.7	%
Uncertain Tax Positions	(0.7	%)	(0.5	%)	(4.9	%)
Other Items, Net	0.2	%	0.4	%	0.7	%
Effective Tax Rate	24.0	%	24.5	%	22.9	%

Deferred Taxes

Deferred tax assets and liabilities represent the future effects on income taxes resulting from temporary differences and carryforwards at the end of the respective year.

The following table provides the effect of temporary differences that cause deferred income taxes as of January 28, 2023 and January 29, 2022:

	January 28, 2023						January 29, 2022
	Assets		Liabilities		Total		Assets		Liabilities		Total
	(in millions)
Loss Carryforwards	$	396	$	—	$	396	$	405	$	—	$	405
Leases	275		(261)		14		275		(262)		13
Share-based Compensation	9		—		9		8		—		8
Property and Equipment	—		(139)		(139)		—		(105)		(105)
Trade Names	—		(38)		(38)		—		(38)		(38)
Other Assets	—		(62)		(62)		—		(62)		(62)
Other, Net	67		(14)		53		46		(16)		30
Valuation Allowance	(364)		—		(364)		(363)		—		(363)
Total Deferred Income Taxes	$	383	$	(514)	$	(131)	$	371	$	(483)	$	(112)

As of January 28, 2023, the Company had loss carryforwards of $396 million, of which $248 million had an indefinite carryforward. The remainder of the U.S. and non-U.S. carryforwards, if unused, will expire at various dates from 2023 through 2040 and 2030 through 2041, respectively. For certain jurisdictions where the Company has determined that it is more likely than not that the loss carryforwards will not be realized, a valuation allowance has been provided on those loss carryforwards as well as other net deferred tax assets.

Income tax payments were $188 million for 2022, $487 million for 2021 and $200 million for 2020.

Uncertain Tax Positions

The following table summarizes the activity related to the Company’s unrecognized tax benefits for U.S. federal, state and non-U.S. tax jurisdictions for 2022, 2021 and 2020, without interest and penalties:

	2022		2021		2020
	(in millions)
Gross Unrecognized Tax Benefits, as of the Beginning of the Fiscal Year	$	147	$	152	$	88
Increases to Unrecognized Tax Benefits for Prior Years	14		5		7
Decreases to Unrecognized Tax Benefits for Prior Years	(12)		(12)		(50)
Increases to Unrecognized Tax Benefits as a Result of Current Year Activity	6		21		113
Decreases to Unrecognized Tax Benefits Relating to Settlements with Taxing Authorities	(2)		(3)		—
Decreases to Unrecognized Tax Benefits as a Result of a Lapse of the Applicable Statute of Limitations	(4)		(16)		(6)
Gross Unrecognized Tax Benefits, as of the End of the Fiscal Year	$	149	$	147	$	152

Of the total gross unrecognized tax benefits, approximately $135 million, $132 million and $142 million, at January 28, 2023, January 29, 2022, and January 30, 2021, respectively, represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. These amounts are net of the offsetting tax effects from other tax jurisdictions.

Of the total unrecognized tax benefits, it is reasonably possible that $107 million could change in the next 12 months due to audit settlements, expiration of statute of limitations or other resolution of uncertainties. Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in amounts which could be different from this estimate. In such case, the Company will record additional tax expense or tax benefit in the period in which such matters are effectively settled.

The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. The Company recognized an income tax expense from interest and penalties of approximately $2 million for 2022, and income tax benefits of $2 million and $3 million in 2021 and 2020, respectively. The Company had accrued $10 million and $8 million for the payment of interest and penalties as of January 28, 2023 and January 29, 2022, respectively. Accrued interest and penalties are included within Other Long-term Liabilities on the Consolidated Balance Sheets.

The Company files U.S. federal income tax returns as well as income tax returns in various states and in non-U.S. jurisdictions. The Company is a participant in the Compliance Assurance Process ("CAP"), which is a program made available by the Internal Revenue Service ("IRS") to certain qualifying large taxpayers, under which participants work collaboratively with the IRS to identify and resolve potential tax issues through open, cooperative and transparent interaction prior to the annual filing of their federal income tax returns. The IRS is currently examining the Company's 2020, 2021 and 2022 consolidated U.S. federal income tax returns.

The Company is also subject to various state and local income tax examinations for the years 2017 to 2021. Finally, the Company is subject to multiple non-U.S. tax jurisdiction examinations for the years 2010 to 2021. In some situations, the Company determines that it does not have a filing requirement in a particular tax jurisdiction. Where no return has been filed, no statute of limitations applies. Accordingly, if a tax jurisdiction reaches a conclusion that a filing requirement does exist, additional years may be reviewed by the tax authority. The Company believes it has appropriately accounted for uncertainties related to this issue.