Income Taxes

12 Months Ended

Jul. 27, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

(a)Provision for Income Taxes

The provision for income taxes consists of the following (in millions):

Years Ended	July 27, 2024		July 29, 2023		July 30, 2022
Federal:
Current	$	1,939	$	3,754	$	2,203
Deferred	(883)		(1,955)		(176)
	1,056		1,799		2,027
State:
Current	388		623		458
Deferred	11		(175)		(156)
	399		448		302
Foreign:
Current	559		412		313
Deferred	(100)		46		23
	459		458		336
Total	$	1,914	$	2,705	$	2,665

Income before provision for income taxes consists of the following (in millions):

Years Ended	July 27, 2024		July 29, 2023		July 30, 2022
United States	$	10,790	$	14,074	$	13,550
International	1,444		1,244		927
Total	$	12,234	$	15,318	$	14,477

The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes consist of the following:

Years Ended	July 27, 2024		July 29, 2023		July 30, 2022
Federal statutory rate	21.0	%	21.0	%	21.0	%
Effect of:
State taxes, net of federal tax benefit	2.8		2.4		1.7
Foreign income at other than U.S. rates	(0.3)		(0.1)		0.8
Tax credits	(2.4)		(0.3)		(1.6)
Foreign-derived intangible income deduction	(5.5)		(5.8)		(3.9)
Stock-based compensation	0.7		1.1		0.3
Other, net	(0.7)		(0.6)		0.1
Total	15.6	%	17.7	%	18.4	%

On August 26, 2024, the U.S. Tax Court issued a ruling in Varian Medical Systems, Inc. v. Commissioner. The ruling related to the U.S. taxation of deemed foreign dividends in the transition year of the Tax Act (our fiscal 2018). We are currently evaluating the potential benefit of this ruling to our provision for income taxes.

During fiscal 2023, we resolved certain items with the Internal Revenue Service (IRS) related to the audit of our federal income tax returns for the fiscal years ended July 26, 2014 through July 30, 2016. As a result of this resolution, we recognized a net benefit to the provision for income taxes of $145 million, which included a reduction of interest expense of $53 million. During fiscal 2024, we resolved all remaining items with the IRS related to the audit of our federal income tax returns for the fiscal years ended July 26, 2014 through July 30, 2016. As a result of this resolution, we recognized a net benefit to the provision for income taxes of $55 million, which included a reduction of interest expense of $18 million.

Foreign taxes associated with the repatriation of earnings of foreign subsidiaries were not provided on a cumulative total of $6.5 billion of undistributed earnings for certain foreign subsidiaries as of the end of fiscal 2024. We intend to reinvest these

earnings indefinitely in such foreign subsidiaries. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, we could be subject to additional income and withholding taxes. The amount of potential unrecognized deferred income tax liability related to these earnings is approximately $681 million.

Unrecognized Tax Benefits

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in millions):

Years Ended	July 27, 2024		July 29, 2023		July 30, 2022
Beginning balance	$	2,137	$	3,101	$	3,106
Additions based on tax positions related to the current year	205		159		157
Additions for tax positions of prior years	256		261		74
Reductions for tax positions of prior years	(344)		(265)		(81)
Settlements	(53)		(1,063)		(69)
Lapse of statute of limitations	(45)		(56)		(86)
Ending balance	$	2,156	$	2,137	$	3,101

As a result of the resolution of the IRS audit of our federal tax income tax returns for the fiscal years ended July 26, 2014 through July 30, 2016, the amount of gross unrecognized tax benefits was reduced by approximately $1.1 billion in fiscal 2023 and $245 million in fiscal 2024.

As of July 27, 2024, $1.5 billion of the unrecognized tax benefits would affect the effective tax rate if realized. We recognized net interest expense of $21 million, $27 million and $33 million during fiscal 2024, 2023, and 2022, respectively. Our net penalty expense for fiscal 2024, 2023, and 2022 was not material. Our total accrual for interest and penalties was $401 million, $523 million, and $486 million as of the end of fiscal 2024, 2023, and 2022, respectively. We are no longer subject to U.S. federal income tax audit for returns covering tax years through fiscal 2016. We are no longer subject to foreign or state income tax audits for returns covering tax years through fiscal 2003 and fiscal 2008, respectively.

We regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. We believe it is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months. Specific positions that may be resolved include issues involving transfer pricing and various other matters. We estimate that the unrecognized tax benefits at July 27, 2024 could be reduced by $100 million in the next 12 months.

(b)Deferred Tax Assets and Liabilities

The following table presents the breakdown for net deferred tax assets (in millions):

	July 27, 2024		July 29, 2023
Deferred tax assets	$	6,262	$	6,576
Deferred tax liabilities	(76)		(62)
Total net deferred tax assets	$	6,186	$	6,514

The following table presents the components of the deferred tax assets and liabilities (in millions):

	July 27, 2024		July 29, 2023
ASSETS
Allowance for accounts receivable and returns	$	94	$	81
Sales-type and direct-financing leases	23		22
Inventory write-downs and capitalization	530		452
Deferred foreign income	277		218
IPR&D and purchased intangible assets	1,039		1,082
Depreciation	184		16
Deferred revenue	2,034		1,801
Credits and net operating loss carryforwards	1,863		1,218
Share-based compensation expense	297		198
Accrued compensation	275		328
Lease liabilities	308		246
Capitalized research expenditures	3,030		2,042
Other	442		484
Gross deferred tax assets	10,396		8,188
Valuation allowance	(1,024)		(754)
Total deferred tax assets	9,372		7,434
LIABILITIES
Goodwill and purchased intangible assets	(2,808)		(602)
ROU lease assets	(259)		(234)
Other	(119)		(84)
Total deferred tax liabilities	(3,186)		(920)
Total net deferred tax assets	$	6,186	$	6,514

The changes in the valuation allowance for deferred tax assets are summarized as follows (in millions):

	July 27, 2024		July 29, 2023		July 30, 2022
Balance at beginning of fiscal year	$	754	$	834	$	771
Additions	148		35		84
Additions from Splunk	147		—		—
Deductions	(4)		(18)		(10)
Write-offs	(20)		(93)		(12)
Foreign exchange and other	(1)		(4)		1
Balance at end of fiscal year	$	1,024	$	754	$	834

As of July 27, 2024, our federal, state, and foreign net operating loss carryforwards before valuation allowance for income tax purposes were $1.4 billion, $1.9 billion, and $531 million, respectively. A significant amount of the net operating loss carryforwards relates to acquisitions and, as a result, is limited in the amount that can be recognized in any one year. If not utilized, the federal, state, and foreign net operating loss carryforwards will begin to expire in fiscal 2025. We have provided a valuation allowance of $86 million and $10 million for deferred tax assets related to foreign and state net operating losses respectively that are not expected to be realized.

As of July 27, 2024, our federal, state, and foreign tax credit carryforwards for income tax purposes before valuation allowance were approximately $309 million, $1.9 billion, and $11 million, respectively. The federal tax credit carryforwards will begin to expire in fiscal 2026. The majority of state and foreign tax credits can be carried forward indefinitely. We have provided a valuation allowance of $878 million for deferred tax assets related to state and foreign tax credits carryforwards that are not expected to be realized.