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Income Taxes
 12 Months Ended
Jul. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
(a)Provision for Income Taxes
The provision for income taxes consists of the following (in millions):
Years EndedJuly 31, 2021July 25, 2020July 27, 2019
Federal:
Current$1,959 $1,101 $1,760 
Deferred(203)(374)(84)
1,756 727 1,676 
State:
Current513 264 302 
Deferred(46)287 (2)
467 551 300 
Foreign:
Current583 1,429 1,238 
Deferred(135)49 (264)
448 1,478 974 
Total$2,671 $2,756 $2,950 
Income before provision for income taxes consists of the following (in millions):
Years EndedJuly 31, 2021July 25, 2020July 27, 2019
United States$12,335 $7,534 $7,611 
International927 6,436 6,960 
Total$13,262 $13,970 $14,571 
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes consist of the following:
Years EndedJuly 31, 2021July 25, 2020July 27, 2019
Federal statutory rate21.0 %21.0 %21.0 %
Effect of:
State taxes, net of federal tax benefit2.7 3.5 2.0 
Foreign income at other than U.S. rates1.5 (1.5)(4.5)
Tax credits(1.4)(0.9)(1.7)
Foreign-derived intangible income deduction(4.2)(2.6)(1.3)
Stock-based compensation0.6 (0.1)(0.6)
Impact of the Tax Act— — 6.1 
Other, net(0.1)0.3 (0.8)
Total20.1 %19.7 %20.2 %
During fiscal 2019, we recorded an $872 million charge related to the Tax Act. This charge was the reversal of the previously recorded benefit associated with the U.S. taxation of deemed foreign dividends recorded in fiscal 2018 because of a retroactive final U.S. Treasury regulation issued during fiscal 2019.
During fiscal 2020, the Internal Revenue Service (IRS) and Cisco settled all outstanding items related to the audit of our federal income tax returns for the fiscal year ended July 30, 2011 through July 27, 2013. As a result of the settlement, we recognized a net benefit to the provision for income taxes of $102 million, net of a reduction in interest expense of $4 million.
Foreign taxes associated with the repatriation of earnings of foreign subsidiaries were not provided on a cumulative total of $6.5 billion of undistributed earnings for certain foreign subsidiaries as of the end of fiscal 2021. We intend to reinvest these earnings indefinitely in such foreign subsidiaries. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, we could be subject to additional income and withholding taxes. The amount of potential unrecognized deferred income tax liability related to these earnings is approximately $681 million.
As a result of certain employment and capital investment actions, our income in certain foreign countries was subject to reduced tax rates. The tax incentives expired at the end of fiscal 2019. As of the end of fiscal 2019, the gross income tax benefits attributable to tax incentives were estimated to be $0.3 billion ($0.08 per diluted share). The gross income tax benefits were partially offset by accruals of U.S. income taxes on foreign earnings.
Unrecognized Tax Benefits
The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in millions):
Years EndedJuly 31, 2021July 25, 2020July 27, 2019
Beginning balance$2,518 $1,925 $2,000 
Additions based on tax positions related to the current year224 188 185 
Additions for tax positions of prior years618 554 84 
Reductions for tax positions of prior years(122)(136)(283)
Settlements(93)(4)(38)
Lapse of statute of limitations(39)(9)(23)
Ending balance$3,106 $2,518 $1,925 
As of July 31, 2021, $2.3 billion of the unrecognized tax benefits would affect the effective tax rate if realized. During fiscal 2021, we recognized $74 million of net interest expense and increased our unrecognized tax benefits for prior year tax positions by $618 million to reflect expected settlement positions in on-going U.S. federal, state, and foreign income tax return examinations. We recognized net interest expense of $104 million during fiscal 2020 and $30 million during fiscal 2019. Our net penalty expense for fiscal 2021, 2020, and 2019 was not material. Our total accrual for interest and penalties was $444 million, $340 million, and $220 million as of the end of fiscal 2021, 2020, and 2019, respectively. We are no longer subject to U.S. federal income tax audit for returns covering tax years through fiscal 2013. We are no longer subject to foreign or state income tax audits for returns covering tax years through fiscal 2003 and fiscal 2008, respectively.
We regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. We believe it is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months. Specific positions that may be resolved include issues involving transfer pricing and various other matters. We estimate that the unrecognized tax benefits at July 31, 2021 could be reduced by $800 million in the next 12 months.
(b)Deferred Tax Assets and Liabilities
The following table presents the breakdown for net deferred tax assets (in millions):
July 31, 2021July 25, 2020
Deferred tax assets$4,360 $3,990 
Deferred tax liabilities(134)(81)
Total net deferred tax assets$4,226 $3,909 
The following table presents the components of the deferred tax assets and liabilities (in millions):
July 31, 2021July 25, 2020
ASSETS
Allowance for accounts receivable and returns$68 $110 
Sales-type and direct-financing leases157 179 
Inventory write-downs and capitalization392 350 
Deferred foreign income164 253 
IPR&D and purchased intangible assets1,195 1,289 
Deferred revenue1,526 1,182 
Credits and net operating loss carryforwards1,264 1,105 
Share-based compensation expense123 135 
Accrued compensation333 353 
Lease liabilities277 240 
Capitalized research expenditures303 223 
Other454 348 
Gross deferred tax assets6,256 5,767 
Valuation allowance(771)(700)
Total deferred tax assets5,485 5,067 
LIABILITIES
Goodwill and purchased intangible assets(686)(577)
Depreciation(164)(179)
Unrealized gains on investments(112)(119)
ROU lease assets(260)(222)
Other(37)(61)
Total deferred tax liabilities(1,259)(1,158)
Total net deferred tax assets$4,226 $3,909 
As of July 31, 2021, our federal, state, and foreign net operating loss carryforwards for income tax purposes were $540 million, $1.1 billion, and $617 million, respectively. A significant amount of the net operating loss carryforwards relates to acquisitions and, as a result, is limited in the amount that can be recognized in any one year. If not utilized, the federal, state, and foreign net operating loss carryforwards will begin to expire in fiscal 2022. We have provided a valuation allowance of $104 million for deferred tax assets related to foreign net operating losses that are not expected to be realized.
As of July 31, 2021, our federal, state, and foreign tax credit carryforwards for income tax purposes were approximately $31 million, $1.4 billion, and $7 million, respectively. The federal tax credit carryforwards will begin to expire in fiscal 2023. The majority of state and foreign tax credits can be carried forward indefinitely. We have provided a valuation allowance of $595 million for deferred tax assets related to state and foreign tax credits carryforwards that are not expected to be realized.