Taxes on Earnings

12 Months Ended

Jan. 30, 2021

The provision for income taxes consisted of the following:


($000)	2020		2019		2018
Current
Federal	$	44,164	$	414,823	$	357,170
State	4,563		56,528		74,472
	48,727		471,351		431,642
Deferred
Federal	(27,487)		28,244		33,913
State	(325)		3,765		(2,136)
	(27,812)		32,009		31,777
Total	$	20,915	$	503,360	$	463,419

The provision for taxes for financial reporting purposes is different from the tax provision computed by applying the statutory federal income tax rate. The differences are reconciled below:


	2020		2019		2018
Federal income taxes at the statutory rate	21.0	%	21.0	%	21.0	%
State income taxes (net of federal benefit)	4.1	%	3.2	%	3.5	%
Hiring tax credits	(5.4)	%	(0.4)	%	(0.5)	%
Tax audit settlements	—	%	(0.5)	%	(1.3)	%
Other, net	—	%	—	%	(0.1)	%
Total	19.7	%	23.3	%	22.6	%

Certain items in the prior years have been reclassified to conform to current year’s presentation.

In fiscal 2019, the Company resolved uncertain tax positions with a state tax authority. As a result, the Company recognized a tax benefit of approximately $10.0 million in the Consolidated Statement of Earnings. In fiscal 2018, the Company resolved uncertain tax positions related to fiscal 2015 with the Internal Revenue Service. As a result, the Company recognized a tax benefit of approximately $26.0 million in the Consolidated Statement of Earnings.

The components of deferred taxes at January 30, 2021 and February 1, 2020 are as follows:


($000)	2020		2019
Deferred Tax Assets
Accrued liabilities	$	30,415	$	35,242
Deferred compensation	34,545		33,108
Stock-based compensation	39,302		35,290
State taxes and credits	10,926		20,178
Employee benefits	37,779		18,425
Operating lease liabilities	829,946		797,467
Other	6,239		3,353
Gross Deferred Tax Assets	989,152		943,063
Less: Valuation allowance	(4,089)		(4,590)
Deferred Tax Assets	985,063		938,473

Deferred Tax Liabilities
Depreciation	(285,161)		(273,255)
Merchandise inventory	(25,434)		(26,376)
Supplies	(11,589)		(10,972)
Operating lease assets	(775,183)		(766,874)
Other	(9,563)		(10,675)
Deferred Tax Liabilities	(1,106,930)		(1,088,152)
Net Deferred Tax Liabilities	$	(121,867)	$	(149,679)

At the end of fiscal 2020 and 2019, the Company’s state tax credit carryforwards for income tax purposes were approximately $13.7 million and $12.8 million, respectively. The state tax credit carryforwards will begin to expire in fiscal 2021. The Company has provided a valuation allowance of $4.1 million as of the end of fiscal 2020 for deferred tax assets related to state tax credits that are not expected to be realized.

The changes in amounts of unrecognized tax benefits (gross of federal tax benefits and excluding interest and penalties) at fiscal 2020, 2019, and 2018 are as follows:


($000)	2020		2019		2018
Unrecognized tax benefits - beginning of year	$	59,887	$	65,787	$	98,666
Gross increases:
Tax positions in current period	12,310		13,864		14,722
Tax positions in prior period	2,860		2,672		1,843
Gross decreases:
Tax positions in prior periods	(2,624)		(9,559)		(40,600)
Lapse of statutes of limitations	(9,861)		(8,653)		(8,584)
Settlements	(2,332)		(4,224)		(260)
Unrecognized tax benefits - end of year	$	60,240	$	59,887	$	65,787

At the end of fiscal 2020, 2019, and 2018, the reserves for unrecognized tax benefits were $67.9 million, $67.1 million, and $78.8 million inclusive of $7.7 million, $7.2 million, and $13.0 million of related reserves for interest and penalties, respectively. In fiscal 2019, the Company resolved uncertain tax positions with a state tax authority. As a result, the Company recognized a decrease in reserves for tax positions in prior periods of $16.2 million, inclusive of $6.6 million of related reserves for interest and penalties. In fiscal 2018, the Company resolved uncertain tax positions related to fiscal 2015 with the Internal Revenue Service. As a result, the Company recognized a decrease in reserves for tax positions in prior periods of $52.4 million, inclusive of $12.6 million of related reserves for interest

and penalties. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $54.2 million would impact the Company’s effective tax rate. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred tax assets and liabilities. These amounts are net of federal and state income taxes.

It is reasonably possible that certain federal and state tax matters may be concluded or statutes of limitations may lapse during the next twelve months. Accordingly, the total amount of unrecognized tax benefits may decrease by up to $10.6 million.

The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2017 through 2020. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2016 through 2020. Certain state tax returns are currently under audit by various tax authorities. The Company does not expect the results of these audits to have a material impact on the consolidated financial statements.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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