Ulta Beauty, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Feb. 02, 2019

Income Taxes

Income Taxes

10. Income taxes

The provision for income taxes consists of the following:


	Fiscal		Fiscal		Fiscal
(In thousands)	2018		2017		2016
Current:
Federal	$	137,255	$	230,006	$	194,199
State		29,247		28,714		24,835
Total current		166,502		258,720		219,034
Deferred:
Federal		29,374		(26,256)		24,480
State		4,706		(839)		2,440
Total deferred		34,080		(27,095)		26,920
Provision for income taxes	$	200,582	$	231,625	$	245,954

A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:


	Fiscal		Fiscal		Fiscal
	2018		2017		2016
Federal statutory rate	21.0	%	33.7	%	35.0	%
State effective rate, net of federal tax benefit	3.1	%	2.4	%	2.8	%
Re-measurement of deferred tax liabilities	0.0	%	(4.9)	%	0.0	%
Excess deduction of stock compensation	(0.6)	%	(1.2)	%	0.0	%
Other	(0.2)	%	(0.6)	%	(0.3)	%
Effective tax rate	23.3	%	29.4	%	37.5	%

At February 3, 2018, the Company recorded a provisional tax expense related to the impacts of the Tax Cuts and Jobs Act (Tax Reform). The SEC issued guidance on December 22, 2017 under Staff Accounting Bulletin No. 118 (“SAB 118”) which allowed recording a provisional tax expense using a measurement period, not to exceed more than one year from the enactment date. The Company’s accounting for the impacts of the Tax Reform is complete and the Company has not recorded any material adjustments to the provisional amounts under SAB 118.

Significant components of the Company’s deferred tax assets and liabilities are as follows:


	February 2,		February 3,
(In thousands)	2019		2018
Deferred tax assets:
Reserves not currently deductible	$	30,669	$	23,789
Employee benefits		18,491		15,273
Credit carryforwards		237		343
Accrued liabilities		34,391		14,625
Inventory valuation		4,107		847
NOL carryforwards		413		—
Total deferred tax assets		88,308		54,877
Deferred tax liabilities:
Property and equipment		69,265		54,210
Deferred rent obligation		60,525		49,518
Prepaid expenses		39,915		10,552
Intangibles		1,018		—
Receivables not currently includable		1,449		—
Total deferred tax liabilities		172,172		114,280
Net deferred tax liability	$	(83,864)	$	(59,403)

At February 2, 2019, the Company had $237 of credit carryforwards for state income tax purposes that expire between 2023 and 2028. The Company also had $1,114 of federal and $1,136 of state net operating loss (NOL) carryforwards that expire by 2035 and $368 of federal and $345 of state NOL carryforwards that do not expire.

The Company accounts for uncertainty in income taxes in accordance with the ASC 740-10 rules for income taxes. The reserve for uncertain tax positions was $3,844 and $3,565 at February 2, 2019 and February 3, 2018, respectively. The balance is the Company’s best estimate of the potential liability for uncertain tax positions. A reconciliation of the Company’s unrecognized tax benefits, excluding interest and penalties, is as follows:


	February 2,		February 3,
(In thousands)	2019		2018
Balance at beginning of the period	$	3,565	$	3,305
Increase due to a prior year tax position		1,008		1,064
Decrease due to a prior period position		(729)		(804)
Balance at the end of the period	$	3,844	$	3,565

The Company acknowledges that the amount of unrecognized tax benefits may change in the next twelve months. However, it does not expect the change to have a significant impact on its consolidated financial statements. Income tax-related interest and penalties were insignificant for fiscal 2018 and 2017.

The Company files tax returns in the U.S. federal and state jurisdictions. The Company is no longer subject to U.S. federal examinations by the Internal Revenue Service for years before 2017 and is no longer subject to examinations by state authorities before 2014.