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Income Taxes
 12 Months Ended
Feb. 01, 2025
Income Tax Disclosure [Abstract]  
Income Taxes

5. Income Taxes

Deferred income taxes consist of the following:

 

(Dollars in Millions)

February 1, 2025

February 3, 2024

Deferred tax liabilities:

    Property and equipment

$431

$521

    Lease assets

1,024

1,151

    Merchandise inventories

31

45

    Total deferred tax liabilities

1,486

1,717

Deferred tax assets:

    Lease obligations

1,336

1,468

    Accrued and other liabilities, including stock-based compensation

188

200

    Federal benefit on state tax reserves

16

21

    Valuation allowance

(44)

(47)

    Total deferred tax assets

1,496

1,642

Net deferred tax (asset) liability

$(10)

$75

 

Deferred tax assets included in other long-term assets totaled $38 million as of February 1, 2025 and $32 million as of February 3, 2024. As of February 1, 2025, the Company had state net operating loss carryforwards, net of valuation allowances, of $16 million, and state credit carryforwards, net of valuation allowances, of $2 million, which will expire between 2025 and 2045. As of February 3, 2024, state net operating loss carryforwards, net of valuation allowances, were $28 million, and state credit carryforwards, net of valuation allowances, were $4 million.

The components of the Provision (benefit) for income taxes were as follows:

 

(Dollars in Millions)

2024

2023

2022

Current federal

$87

$78

$39

Current state

3

(14)

6

Deferred federal

(79)

(18)

(70)

Deferred state

(6)

10

(14)

Provision (benefit) for income taxes

$5

$56

$(39)

The effective tax rate differs from the amount that would be provided by applying the statutory U.S. corporate tax rate due to the following items:

 

(Dollars in Millions)

2024

2023

2022

Taxes computed at federal statutory rate

$24

$78

$(12)

State income taxes, net of federal tax benefit

6

16

(1)

Uncertain tax positions

(13)

(28)

(16)

Federal tax credits

(9)

(9)

(8)

Other

(3)

(1)

(2)

Total

$5

$56

$(39)

Effective tax rate

3.9%

15.1%

68.1%

 

Our income tax provisions or benefits were $5 million tax provision, $56 million tax provision, and $39 million tax benefit in fiscal years 2024, 2023, and 2022, respectively. Fiscal years 2024 and 2023 resulted in income tax provisions compared to an income tax benefit in fiscal year 2022 due to the pre-tax book income in fiscal years 2024 and 2023 compared to the pre-tax book loss in 2022. In addition, in fiscal years 2024, 2023 and 2022, we recorded a net tax benefit for the impact of favorable results from uncertain tax positions.

 

We have analyzed filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. The significant federal and state returns subject to examination are the 2015 through 2024 tax years. Certain tax agencies have proposed adjustments, which we are currently appealing. If we do not prevail on our appeals, we do not anticipate that the adjustments would result in a material change in our financial position.

 

We assess our income tax positions and record tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates. For those income tax positions where it is more-likely-than-not, based on technical merits, that a tax benefit will be sustained upon the conclusion of an examination, we have recorded the largest amount of tax benefit having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority, assuming that it has full knowledge of all relevant information. For those tax positions which do not meet the more-likely-than-not threshold regarding the ultimate realization of the related tax benefit, no tax benefit has been recorded in the financial statements. In addition, we provide for interest and penalties, as applicable, and record such amounts as a component of the overall income tax provision. A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows:

 

(Dollars in Millions)

2024

2023

Balance at beginning of year

$200

$219

Increases due to tax positions taken in prior years

2

10

Increases due to tax positions taken in current year

7

6

Decreases due to:

 

 

Tax positions taken in prior years

(17)

(32)

Settlements with taxing authorities

(5)

—

Lapse of applicable statute of limitations

(3)

(3)

Balance at end of year

$184

$200

 

The total gross amount of interest and penalties accrued was $21 million at February 1, 2025 and $33 million at February 3, 2024. Interest and penalties recognized during the years were a tax benefit of $3 million in 2024, $8 million in 2023, and $1 million in 2022.

 

Our net unrecognized tax benefits that, if recognized, would affect our effective tax rate were $173 million as of February 1, 2025 and $186 million as of February 3, 2024. It is reasonably possible that our unrecognized tax positions may change within the next 12 months, primarily as a result of ongoing audits. While it is possible that one or more of these examinations may be resolved in the next year, it is not anticipated that a significant impact to the unrecognized tax benefit balance will occur.

 

We have both payables and receivables for income taxes recorded on our balance sheet. Receivables included in other current assets totaled $4 million as of February 1, 2025 and $10 million as of February 3, 2024. Receivables included in other long-term assets totaled $283 million as of February 1, 2025 and $200 million as of February 3, 2024. The majority of the receivable balance relates to the cash benefit of the 2020 net operating loss that has not yet been received. Payables included in current liabilities totaled $158 million as of February 1, 2025 and $40 million as of February 3, 2024.