Income Taxes

12 Months Ended

Jan. 31, 2021

INCOME TAXES

Provision for Income Taxes

Our earnings before the provision for income taxes follow:


in millions	Fiscal		Fiscal		Fiscal
	2020		2019		2018
United States	$	16,013	$	13,770	$	13,456
Foreign	965		945		1,100
Total	$	16,978	$	14,715	$	14,556

Our provision for income taxes follows:


in millions	Fiscal		Fiscal		Fiscal
	2020		2019		2018
Current:
Federal	$	3,462	$	2,370	$	2,495
State	928		572		544
Foreign	329		340		372
Total current	4,719		3,282		3,411
Deferred:
Federal	(404)		259		67
State	(209)		(72)		1
Foreign	6		4		(44)
Total deferred	(607)		191		24
Provision for income taxes	$	4,112	$	3,473	$	3,435

Our combined federal, state, and foreign effective tax rates follow:


	Fiscal		Fiscal		Fiscal
	2020		2019		2018
Combined federal, state, and foreign effective tax rates	24.2	%	23.6	%	23.6	%

The reconciliation of our provision for income taxes at the federal statutory rate of 21% to the actual tax expense follows:


in millions	Fiscal		Fiscal		Fiscal
	2020		2019		2018
Income taxes at federal statutory rate	$	3,565	$	3,090	$	3,057
State income taxes, net of federal income tax benefit	568		395		443
Tax on mandatory deemed repatriation	—		—		(62)
Other, net	(21)		(12)		(3)
Total	$	4,112	$	3,473	$	3,435

Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and deferred tax liabilities follow:


in millions	January 31, 2021		February 2, 2020
Assets:
Deferred compensation	$	472	$	169
Accrued self-insurance liabilities	291		285
State income taxes	117		100
Merchandise inventories	41		—
Non-deductible reserves	199		156
Net operating losses	144		70
Lease liabilities	1,605		1,536
Other	155		135
Total deferred tax assets	3,024		2,451
Valuation allowance	(8)		—
Total deferred tax assets, net of valuation allowance	3,016		2,451

Liabilities:
Merchandise inventories	—		(26)
Property and equipment	(1,061)		(1,107)
Goodwill and other intangibles	(1,030)		(195)
Lease right-of-use assets	(1,555)		(1,458)
Tax on unremitted earnings	(119)		(100)
Other	(77)		(132)
Total deferred tax liabilities	(3,842)		(3,018)
Net deferred tax liabilities	$	(826)	$	(567)

Our noncurrent deferred tax assets and noncurrent deferred tax liabilities, netted by tax jurisdiction, follow:


in millions	January 31, 2021		February 2, 2020
Other assets	$	305	$	139
Deferred income taxes	(1,131)		(706)
Net deferred tax liabilities	$	(826)	$	(567)

As of January 31, 2021, we recorded deferred tax assets of $144 million for net operating losses, primarily related to state jurisdictions. These losses expire at various dates beginning in 2022. We have concluded that it is more likely than not that tax benefits related to substantially all net operating losses will be realized based upon the expectation that we will generate the necessary taxable income in future periods.

Reinvestment of Unremitted Earnings

Substantially all of our current year foreign cash flows in excess of working capital and cash needed for strategic investments are not intended to be indefinitely reinvested offshore. Therefore, the tax effects of repatriation (including applicable state and local taxes and foreign withholding taxes) of such cash flows have been provided for in the accompanying consolidated statements of earnings. We have the intent and ability to reinvest substantially all of the approximately $3 billion of non-cash unremitted earnings of our non-U.S. subsidiaries indefinitely. Accordingly, no provision for state and local taxes or foreign withholding taxes was recorded on these unremitted earnings in the accompanying consolidated statements of earnings. It is impracticable for us to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings due to the complexities associated with the hypothetical calculation.

Tax Return Examination Status

Our income tax returns are routinely examined by U.S. federal, state and local, and foreign tax authorities. With few exceptions, as of January 31, 2021, the Company is no longer subject to U.S. federal examinations by tax authorities for years before fiscal 2010. Our U.S. federal tax returns for fiscal years 2010 through 2018 are currently under examination by the IRS. With respect to the fiscal years 2010 to 2014, the IRS has issued a proposed adjustment relating to transfer pricing between our entities in the U.S. and China. We are defending our position using all available remedies including bi-lateral relief from double taxation. There are also ongoing U.S. state and local audits and other foreign audits covering fiscal years 2008 through 2019. We do not expect the results from any ongoing income tax audit to have a material impact on our consolidated financial condition, results of operations, or cash flows.

Over the next twelve months, it is reasonably possible that the resolution of federal and state tax examinations, as well as the expiration of statutes of limitations, could reduce our unrecognized tax benefits by an immaterial amount. We do not anticipate the resolution of these matters will result in a material change to our consolidated financial condition or results of operations.

Unrecognized Tax Benefits

Reconciliations of the beginning and ending amount of our gross unrecognized tax benefits follow:


in millions	Fiscal		Fiscal		Fiscal
	2020		2019		2018
Unrecognized tax benefits balance at beginning of fiscal year	$	473	$	494	$	637
Additions based on tax positions related to the current year	75		96		91
Additions for tax positions of prior years	72		82		100
Reductions for tax positions of prior years	(53)		(147)		(245)
Reductions due to settlements	(22)		(13)		(66)
Reductions due to lapse of statute of limitations	(5)		(39)		(23)
Unrecognized tax benefits balance at end of fiscal year	$	540	$	473	$	494

Unrecognized tax benefits that if recognized would affect our annual effective income tax rate on net earnings were $458 million, $407 million, and $398 million at January 31, 2021, February 2, 2020, and February 3, 2019, respectively.

Interest and Penalties

Net adjustments to accruals for interest and penalties associated with uncertain tax positions were immaterial in fiscal 2020, fiscal 2019 and fiscal 2018.

Our total accrued interest and penalties follow:


in millions	January 31, 2021		February 2, 2020
Total accrued interest and penalties	$	97	$	87

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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