Income Taxes

The provision for income taxes from continuing operations consisted of the following for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2012			2011		2010
Current:
Federal	$	375		$	279	$	245
State	30			44		46
Foreign	2			5		33
Total current	407			328		324
Deferred:
Federal	(27		)	3		(15		)
State	(4		)	7		(1		)
Foreign	8			6		(16		)
Total deferred	(23		)	16		(32		)
Total provision for income taxes from continuing operations	$	384		$	344	$	292

Excess tax benefits associated with share-based compensation deductions are credited to stockholders’ equity. The reductions of income taxes payable resulting from share-based compensation deductions that were credited to stockholders’ equity were approximately $71 million for the twelve months ended July 31, 2012, $81 million for the twelve months ended July 31, 2011, and $36 million for the twelve months ended July 31, 2010.

The sources of income from continuing operations before the provision for income taxes consisted of the following for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2012		2011		2010
United States	$	1,109	$	949	$	820
Foreign	42		47		36
Total	$	1,151	$	996	$	856

Differences between income taxes calculated using the federal statutory income tax rate of 35% and the provision for income taxes from continuing operations were as follows for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2012			2011			2010
Income from continuing operations before income taxes	$	1,151		$	996		$	856

Statutory federal income tax	$	403		$	348		$	300
State income tax, net of federal benefit	16			34			29
Federal research and experimentation credits	(9		)	(25		)	(8		)
Domestic production activities deduction	(27		)	(25		)	(14		)
Share-based compensation	7			6			4
Effects of non-U.S. operations	(5		)	(4		)	(20		)
Non-deductible goodwill	4			8			—
Other, net	(5		)	2			1
Total provision for income taxes from continuing operations	$	384		$	344		$	292

In December 2010 the Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010 was signed into law. The Act includes a reinstatement of the federal research and experimentation credit through December 31, 2011 that was retroactive to January 1, 2010. We recorded a discrete tax benefit of approximately $9 million for the retroactive amount related to fiscal 2010 and the first quarter of fiscal 2011 during the twelve months ended July 31, 2011.

During the twelve months ended July 31, 2010 we recorded discrete tax benefits of approximately $20 million that were related to foreign tax credits associated with the distribution of profits from certain of our non-U.S. subsidiaries and our plans to indefinitely reinvest substantially all remaining non-U.S. earnings in support of our international expansion plans. This tax benefit is shown in the table above on the effects of non-U.S. operations line.

Significant deferred tax assets and liabilities were as follows at the dates indicated:



	July 31,
(In millions)	2012			2011
Deferred tax assets:
Accruals and reserves not currently deductible	$	45		$	28
Deferred rent	11			9
Accrued and deferred compensation	50			33
Loss and tax credit carryforwards	45			39
Property and equipment	14			11
Share-based compensation	98			88
Net basis difference in investment held for sale	36			—
Other, net	—			1
Total deferred tax assets	299			209
Deferred tax liabilities:
Intangible assets	90			51
Other, net	11			1
Total deferred tax liabilities	101			52
Total net deferred tax assets	198			157
Valuation allowance	(8		)	(8		)
Total net deferred tax assets, net of valuation allowance	$	190		$	149

We have provided a valuation allowance related to the benefits of certain state net operating loss and state tax credit carryforwards that we believe are unlikely to be realized. Changes in the valuation allowance during the twelve months ended July 31, 2012 and 2011 were not significant.

We provide U.S. federal income taxes on the earnings of foreign subsidiaries unless the subsidiaries' earnings are intended to be indefinitely reinvested in our international operations. To the extent that foreign earnings previously treated as indefinitely reinvested are repatriated, the related U.S. tax liability may, subject to certain limitations, be reduced by any foreign income taxes paid on these earnings. At July 31, 2012, the cumulative amount of earnings upon which U.S. income taxes had not been provided was approximately $43 million. The unrecognized deferred tax liability for these earnings was approximately $12 million.

The deferred tax asset for the net basis difference in the Intuit Websites investment held for sale is $36 million, for which we recorded the related tax benefit to net income from discontinued operations in fiscal 2012. See Note 8, "Discontinued Operations," for more information.

The components of total net deferred tax assets, net of valuation allowances, as shown on our balance sheets were as follows at the dates indicated:



	July 31,
(In millions)	2012		2011
Current deferred income taxes	$	184	$	94
Long-term deferred income taxes	6		55
Total net deferred tax assets, net of valuation allowance	$	190	$	149

At July 31, 2012, we had total federal net operating loss carryforwards of approximately $62 million that will start to expire in fiscal 2022. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.

At July 31, 2012, we had excess federal foreign tax credits of approximately $10 million, of which $2 million can be carried back and $8 million can be carried forward. The foreign tax credit carryforwards will start to expire in fiscal 2020. Our ability to utilize foreign tax credits is dependent upon having sufficient foreign source income during the carryforward period. The foreign source income limitation may result in the expiration of foreign tax credits before utilization.

At July 31, 2012, we had total state net operating loss carryforwards of approximately $161 million for which we have recorded a deferred tax asset of $8 million and a valuation allowance of $6 million. The state net operating losses will start to expire in fiscal 2014. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.

Unrecognized Tax Benefits

The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2012			2011		2010
Gross unrecognized tax benefits, beginning balance	$	41		$	35	$	40
Increases related to tax positions from prior fiscal years, including acquisitions	3			2		3
Decreases related to tax positions from prior fiscal years	(9		)	—		(5		)
Increases related to tax positions taken during current fiscal year	3			4		3
Lapses of statutes of limitations	—			—		(6		)
Gross unrecognized tax benefits, ending balance	$	38		$	41	$	35

The total amount of our unrecognized tax benefits at July 31, 2012 was $38 million. Net of related deferred tax assets, unrecognized tax benefits were $28 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $28 million. We do not believe that it is reasonably possible that there will be a significant increase or decrease in unrecognized tax benefits over the next 12 months.

We file U.S. federal, U.S. state, and foreign tax returns. Our major tax jurisdictions are U.S. federal and the State of California. For U.S. federal tax returns we are no longer subject to tax examinations for fiscal 2008, fiscal 2006, and for years prior to fiscal 2005. For California tax returns we are no longer subject to tax examinations for years prior to fiscal 2007.

We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. Amounts accrued at July 31, 2012 and July 31, 2011 for the payment of interest and penalties were not significant. The amounts of interest and penalties that we recognized during the twelve months ended July 31, 2012, 2011 and 2010 were also not significant.