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)	2013		2012			2011
Current:
Federal	$	307	$	363		$	273
State	28		28			46
Foreign	5		2			5
Total current	340		393			324
Deferred:
Federal	34		(23		)	16
State	2		(4		)	8
Foreign	11		8			6
Total deferred	47		(19		)	30
Total provision for income taxes from continuing operations	$	387	$	374		$	354

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 $69 million for the twelve months ended July 31, 2013, $71 million for the twelve months ended July 31, 2012, and $81 million for the twelve months ended July 31, 2011.

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)	2013		2012		2011
United States	$	1,165	$	1,096	$	995
Foreign	45		42		47
Total	$	1,210	$	1,138	$	1,042

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)	2013			2012			2011
Income from continuing operations before income taxes	$	1,210		$	1,138		$	1,042

Statutory federal income tax	$	424		$	398		$	365
State income tax, net of federal benefit	17			16			36
Federal research and experimentation credits	(24		)	(8		)	(23		)
Domestic production activities deduction	(29		)	(27		)	(25		)
Share-based compensation	7			8			6
Effects of non-U.S. operations	(2		)	(5		)	(4		)
Other, net	(6		)	(8		)	(1		)
Total provision for income taxes from continuing operations	$	387		$	374		$	354

In January 2013 the American Taxpayer Relief Act of 2012 was signed into law. The Act includes a reinstatement of the federal research and experimentation credit through December 31, 2013 that was retroactive to January 1, 2012. We recorded a discrete tax benefit of approximately $8 million for the retroactive effect during the twelve months ended July 31, 2013.

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 effect during the twelve months ended July 31, 2011.

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



	July 31,
(In millions)	2013			2012
Deferred tax assets:
Accruals and reserves not currently deductible	$	51		$	46
Deferred rent	11			11
Accrued and deferred compensation	50			48
Loss and tax credit carryforwards	36			41
Property and equipment	12			15
Share-based compensation	97			97
Net basis difference in investments held for sale	41			38
Total deferred tax assets	298			296
Deferred tax liabilities:
Intangible assets	93			92
Other, net	10			11
Total deferred tax liabilities	103			103
Total net deferred tax assets	195			193
Valuation allowance	(25		)	(10		)
Total net deferred tax assets, net of valuation allowance	$	170		$	183

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)	2013			2012
Current deferred income taxes	$	166		$	183
Long-term deferred income taxes included in other assets	10			—
Long-term deferred income taxes included in other long-term obligations	(6		)	—
Total net deferred tax assets, net of valuation allowance	$	170		$	183

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, 2013, the cumulative amount of earnings upon which U.S. income taxes had not been provided was approximately $57 million. The unrecognized deferred tax liability for these earnings was approximately $14 million.

We have provided a valuation allowance related to the benefits of federal and state net basis difference in investments held for sale, state capital and operating loss carryforwards, 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, 2013 were primarily related to the federal and state net basis difference in investments held for sale and are reflected in the net gain on disposal of discontinued operations. Changes in the valuation allowance during the twelve months ended July 31, 2012 were not significant.

The deferred tax assets for the net basis difference in the Intuit Financial Services and Intuit Health investments held for sale were $9 million and $32 million, on which we recorded valuation allowances of $1 million and $14 million. These deferred tax assets will in part result in capital loss carryforwards upon sale. Our ability to utilize such carryovers will be dependent upon having sufficient capital gain source income during the carryforward period. The capital gain source income limitation may result in the expiration of capital loss carryforwards before utilization. We recorded the related tax benefits of $8 million and $18 million to net gain on disposal of discontinued operations. See Note 8, “Discontinued Operations,” for more information.

The deferred tax asset for the capital loss on the sale of Intuit Websites was $16 million, on which there is a valuation allowance of $2 million for state capital loss carryfowards. The deferred tax asset for the net basis difference in the Intuit Websites investment held for sale at the end of fiscal 2012 was $38 million, on which we recorded a valuation allowance of $2 million. We recorded the related tax benefit to net income from discontinued operations in fiscal 2012.

At July 31, 2013, we had total federal net operating loss carryforwards of approximately $12 million that will start to expire in fiscal 2029. 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, 2013, we had a net capital loss related to the sale of Intuit Websites of approximately $41 million, which for federal income tax purposes can be carried back and give rise to refunds of taxes paid in prior years. For various state purposes, we can only carry forward the capital loss. The state capital loss carryforwards will generally start to expire in fiscal 2018. Our ability to utilize capital loss carryforwards is dependent upon having sufficient capital gain source income during the carryforward period. The capital gain source income limitation may result in the expiration of capital loss carryforwards before utilization.

At July 31, 2013, we had excess federal foreign tax credits of approximately $6 million, of which $5 million can be carried back and give rise to refunds of taxes paid in prior years and $1 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, 2013, we had total state net operating loss carryforwards of approximately $128 million for which we have recorded a deferred tax asset of $7 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.

At July 31, 2013, we had California research and experimentation credit carryforwards of approximately $14 million. If realized, $4 million of the carryfoward will be recognized as additional paid in capital.

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)	2013			2012			2011
Gross unrecognized tax benefits, beginning balance	$	38		$	41		$	35
Increases related to tax positions from prior fiscal years, including acquisitions	5			3			2
Decreases related to tax positions from prior fiscal years	(12		)	(9		)	—
Increases related to tax positions taken during current fiscal year	9			3			4
Settlements with tax authorities	(1		)	—			—
Gross unrecognized tax benefits, ending balance	$	39		$	38		$	41

The total amount of our unrecognized tax benefits at July 31, 2013 was $39 million. Net of related deferred tax assets, unrecognized tax benefits were $27 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $27 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 years prior to fiscal 2010. For California tax returns we are no longer subject to tax examinations for years prior to fiscal 2007. We are currently under examination by the Internal Revenue Service for fiscal 2010 through 2012 and by the California Franchise Tax Board for fiscal 2007 and 2008.

We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. Amounts accrued at July 31, 2013 and July 31, 2012 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, 2013, 2012 and 2011 were also not significant.