| Income taxes |
11. Income taxes
The provision for income taxes consists of the following:
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Fiscal year ended |
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January 29, |
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January 30, |
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February 1, |
(In thousands) |
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2022 |
|
2021 |
|
2020 |
Current: |
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|
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|
|
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Federal |
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$ |
280,300 |
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$ |
67,724 |
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$ |
163,596 |
State |
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|
55,358 |
|
|
11,534 |
|
|
31,106 |
Total current |
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335,658 |
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|
79,258 |
|
|
194,702 |
Deferred: |
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Federal |
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(22,936) |
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(19,631) |
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|
1,182 |
State |
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(2,730) |
|
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(4,377) |
|
|
4,321 |
Total deferred |
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(25,666) |
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(24,008) |
|
|
5,503 |
Provision for income taxes |
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$ |
309,992 |
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$ |
55,250 |
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$ |
200,205 |
A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:
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Fiscal year ended |
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January 29, |
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January 30, |
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February 1, |
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2022 |
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2021 |
|
2020 |
Federal statutory rate |
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21.0% |
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21.0% |
|
21.0% |
State effective rate, net of federal tax benefit |
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3.3% |
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2.9% |
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3.1% |
Executive compensation limitation |
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0.5% |
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1.2% |
|
0.2% |
Excess deduction of stock compensation |
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(0.5%) |
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(0.3%) |
|
(1.1%) |
Other |
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(0.4%) |
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(0.9%) |
|
(1.1%) |
Effective tax rate |
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23.9% |
|
23.9% |
|
22.1% |
Significant components of deferred tax assets and liabilities are as follows:
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January 29, |
|
January 30, |
(In thousands) |
|
2022 |
|
2021 |
Deferred tax assets: |
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Operating lease liability |
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$ |
471,687 |
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$ |
484,780 |
Reserves not currently deductible |
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47,059 |
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|
32,590 |
Accrued liabilities |
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33,289 |
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|
31,056 |
Employee benefits |
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24,355 |
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|
23,687 |
Property and equipment |
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|
1,710 |
|
|
— |
Credit carryforwards |
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|
334 |
|
|
291 |
NOL carryforwards |
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|
303 |
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|
255 |
Inventory valuation |
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— |
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|
8,386 |
Total deferred tax assets |
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578,737 |
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|
581,045 |
Deferred tax liabilities: |
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Operating lease asset |
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561,137 |
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561,605 |
Prepaid expenses |
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45,815 |
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46,013 |
Receivables not currently includable |
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5,398 |
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|
3,720 |
Inventory valuation |
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|
3,490 |
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|
— |
Other |
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|
2,224 |
|
|
1,669 |
Intangibles |
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|
366 |
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|
585 |
Property and equipment |
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— |
|
|
32,812 |
Total deferred tax liabilities |
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618,430 |
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|
646,404 |
Net deferred tax liability |
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$ |
(39,693) |
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$ |
(65,359) |
At January 29, 2022, the Company had $423 of credit carryforwards for state income tax purposes that expire between 2022 and 2025. The Company also had $95 of state net operating loss (NOL) carryforwards that expire by 2040 and $825 of federal and $163 of state NOL carryforwards that do not expire.
The Company accounts for uncertainty in income taxes in accordance with Accounting Standards Codification 740-10. The reserve for uncertain tax positions was $3,389 and $2,783 at January 29, 2022 and January 30, 2021, respectively, which represents the best estimate of the potential liability. A reconciliation of unrecognized tax benefits, excluding interest and penalties, is as follows:
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January 29, |
|
January 30, |
(In thousands) |
|
2022 |
|
2021 |
Balance at beginning of the year |
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$ |
2,783 |
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$ |
3,536 |
Increase due to a prior year tax position |
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|
1,219 |
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|
224 |
Decrease due to a prior year tax position |
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(613) |
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|
(977) |
Balance at end of the year |
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$ |
3,389 |
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$ |
2,783 |
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 2021 and 2020.
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 2018 and is no longer subject to examinations by state authorities before 2017.
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