Income Taxes

12 Months Ended

Feb. 03, 2024

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

Deferred income taxes consist of the following:

(Dollars in Millions)	February 3, 2024	January 28, 2023
Deferred tax liabilities:
Property and equipment	$521	$542
Lease assets	1,151	1,140
Merchandise inventories	45	33
Total deferred tax liabilities	1,717	1,715
Deferred tax assets:
Lease obligations	1,468	1,448
Accrued and other liabilities, including stock-based compensation	200	201
Federal benefit on state tax reserves	21	26
Valuation allowance	(47)	(43)
Total deferred tax assets	1,642	1,632
Net deferred tax liability	$75	$83

Deferred tax assets included in other long-term assets totaled $32 million as of February 3, 2024 and $46 million as of January 28, 2023. As of February 3, 2024, the Company had state net operating loss carryforwards, net of valuation allowances, of $28 million, and state credit carryforwards, net of valuation allowances, of $4 million, which will expire between 2024 and 2044. As of January 28, 2023, state net operating loss carryforwards, net of valuation allowances, were $41 million, and state credit carryforwards, net of valuation allowances, were $3 million.

The components of the Provision (benefit) for income taxes were as follows:

(Dollars in Millions)	2023	2022	2021
Current federal	$78	$39	$311
Current state	(14)	6	63
Deferred federal	(18)	(70)	(59)
Deferred state	10	(14)	(34)
Provision (benefit) for income taxes	$56	$(39)	$281

The effective tax rate differs from the amount that would be provided by applying the statutory U.S. corporate tax rate due to the following items:

(Dollars in Millions)	2023	2022	2021
Taxes computed at federal statutory rate	$78	$(12)	$256
State income taxes, net of federal tax benefit	16	(1)	32
Federal NOL carryback	—	—	(4)
Uncertain tax positions	(28)	(16)	7
Federal tax credits	(9)	(8)	(14)
Other	(1)	(2)	4
Total	$56	$(39)	$281
Effective tax rate	15.1%	68.1%	23.1%

Our income tax provisions or benefits were $56 million tax provision, $39 million tax benefit, and $281 million tax provision in fiscal year 2023, 2022, and 2021, respectively. Fiscal year 2023 and 2021 resulted in an income tax provision compared to an income tax benefit in fiscal year 2022 due to the pre-tax book income in fiscal year 2023 and 2021 compared to the pre-tax book loss in 2022. In addition, in fiscal year 2023 and 2022, we recorded a net tax benefit for the impact of favorable results from uncertain tax positions, compared to an income tax provision related to uncertain tax positions in fiscal year 2021.

We have analyzed filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. The significant federal and state returns subject to examination are the 2015 through 2023 tax years. Certain tax agencies have proposed adjustments, which we are currently appealing. If we do not prevail on our appeals, we do not anticipate that the adjustments would result in a material change in our financial position.

We assess our income tax positions and record tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates. For those income tax positions where it is more-likely-than-not, based on technical merits, that a tax benefit will be sustained upon the conclusion of an examination, we have recorded the largest amount of tax benefit having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority, assuming that it has full knowledge of all relevant information. For those tax positions which do not meet the more-likely-than-not threshold regarding the ultimate realization of the related tax benefit, no tax benefit has been recorded in the financial statements. In addition, we provide for interest and penalties, as applicable, and record such amounts as a component of the overall income tax provision. A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows:

(Dollars in Millions)	2023	2022
Balance at beginning of year	$219	$276
Increases due to tax positions taken in prior years	10	1
Increases due to tax positions taken in current year	6	7
Decreases due to:
Tax positions taken in prior years	(32)	(57)
Settlements with taxing authorities	—	(2)
Lapse of applicable statute of limitations	(3)	(6)
Balance at end of year	$200	$219

Included above in the tax positions taken in prior years for 2022 is a reclass between the unrecognized tax benefits and the deferred tax liability; it had no impact on the effective tax rate. Not included in the unrecognized tax benefits reconciliation above are gross unrecognized accrued interest and penalties of $33 million at February 3, 2024 and $41 million at January 28, 2023. Interest and penalties were a tax benefit of $8 million in 2023 and $1 million in 2022, and a tax expense of $3 million in 2021.

Our net unrecognized tax benefits that, if recognized, would affect our effective tax rate were $186 million as of February 3, 2024 and $202 million as of January 28, 2023. It is reasonably possible that our unrecognized tax positions may change within the next 12 months, primarily as a result of ongoing audits. While it is possible that one or more of these examinations may be resolved in the next year, it is not anticipated that a significant impact to the unrecognized tax benefit balance will occur.

We have both payables and receivables for income taxes recorded on our balance sheet. Receivables included in other current assets totaled $10 million as of February 3, 2024 and $27 million as of January 28, 2023. Receivables included in other long term assets totaled $200 million as of February 3, 2024 and $195 million as of January 28, 2023. The majority of the receivable balance relates to the cash benefit of the 2020 net operating loss that has not yet been received. Payables included in current liabilities totaled $40 million as of February 3, 2024 and $12 million as of January 28, 2023.