Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.1
Income Taxes
 12 Months Ended
Feb. 03, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision for income taxes consists of the following: 
  Year Ended
(in millions) February 3, 2024 January 28, 2023 January 29, 2022
Current taxes:
Federal $ 222.2  $ 322.0  $ 271.1 
State 46.1  50.2  56.3 
Foreign —  0.1  0.1 
Total current taxes 268.3  372.3  327.5 
Deferred taxes:
Federal (225.3) 88.1  50.3 
State (39.2) 30.3  (76.5)
Foreign 5.9  4.5  3.0 
Total deferred taxes (258.6) 122.9  (23.2)
Provision for income taxes $ 9.7  $ 495.2  $ 304.3 
On August 16, 2022, the Inflation Reduction Act of 2022 (“2022 Tax Act”) was enacted into law. A key provision of the 2022 Tax Act is a 15% minimum tax on adjusted financial statement income. We do not expect any impact to our effective tax rate as a result of the new 15% minimum tax under the 2022 Tax Act.
A reconciliation of the statutory U.S. federal income tax rate and the effective tax rate follows: 
  Year Ended
February 3, 2024 January 28, 2023 January 29, 2022
Statutory U.S. federal income tax rate 21.0  % 21.0  % 21.0  %
Effect of:
Goodwill impairment (22.7) —  — 
State and local income taxes, net of federal income tax benefit (1.0) 3.7  3.7 
Non-deductible expenses (1.0) 0.1  0.1 
Work Opportunity Tax Credit 3.0  (1.4) (1.8)
Deferred tax rate change —  0.7  (3.8)
Other, net (0.3) (0.6) (0.6)
Effective tax rate (1.0) % 23.5  % 18.6  %
Goodwill Impairment
In the fourth quarter of fiscal 2023, we recorded a goodwill impairment charge of $1,069.0 million related to Family Dollar goodwill, as further discussed in Note 15. The purchase of Family Dollar was a stock acquisition, and carryover basis applied for tax purposes. The goodwill impairment charge is not deductible for federal or state tax purposes and therefore there is no tax benefit related to the impairment.
Reinvestment of Unremitted Earnings
Substantially all of our current year foreign cash earnings 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 for applicable state taxes and foreign withholding taxes of such cash earnings have been provided for in the accompanying Consolidated Statements of Operations. We have the intent and ability to reinvest substantially all of the non-cash unremitted earnings of our non-U.S. subsidiaries indefinitely. Accordingly, no provision for state taxes or foreign withholding taxes was recorded on these unremitted earnings in the accompanying Consolidated Statements of Operations.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of our net deferred tax assets (liabilities) follow:
(in millions) February 3,
2024		 January 28,
2023
Deferred tax assets:    
Operating lease liabilities $ 1,800.4  $ 1,703.5 
Net operating losses, interest expense and credit carryforwards 72.8  69.3 
Accrued expenses 35.7  31.0 
Accrued compensation expense 39.3  33.9 
State tax election 13.1  14.3 
Other 4.7  2.5 
Total deferred tax assets 1,966.0  1,854.5 
Valuation allowance (17.3) (4.0)
Deferred tax assets, net 1,948.7  1,850.5 
Deferred tax liabilities:    
Operating lease ROU assets (1,639.7) (1,630.9)
Other intangibles (529.1) (760.4)
Property and equipment (571.8) (509.2)
Prepaids (35.8) (25.9)
Inventory (4.4) (14.8)
Total deferred tax liabilities (2,780.8) (2,941.2)
Deferred income taxes, net $ (832.1) $ (1,090.7)
At February 3, 2024, we had certain state tax credit carryforwards, net operating loss carryforwards and capital loss carryforwards totaling $72.8 million. Some of these carryforwards will expire, if not utilized, beginning in fiscal 2024 through fiscal 2043.
A valuation allowance of $17.3 million, net of federal tax benefits, has been provided principally for certain state credit carryforwards and net operating loss carryforwards. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred taxes will not be realized. Based upon the availability of carrybacks of future deductible amounts and our projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not the remaining existing deductible temporary differences will reverse during periods in which carrybacks are available or in which we generate net taxable income.
Uncertain Tax Positions
We are participating in the IRS Compliance Assurance Program (“CAP”) for fiscal 2023 and we have been accepted into the program for fiscal 2024. This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed. Our federal tax returns have been examined and all issues have been settled through the fiscal 2021 tax year. In fiscal 2020, we participated in the CAP under the IRS’s bridge year program and as a result, the IRS will not be completing an audit on the fiscal 2020 tax return at this time. Several states completed their examinations during fiscal 2023. In general, fiscal 2020 and forward are within the statute of limitations for state tax purposes. The statute of limitations is still open prior to fiscal 2020 for some states.
The balance for unrecognized tax benefits at February 3, 2024 was $22.0 million. The total amount of unrecognized tax benefits at February 3, 2024 that, if recognized, would affect the effective tax rate was $17.4 million (net of the federal tax benefit).
The following is a reconciliation of our total gross unrecognized tax benefits:
(in millions) February 3, 2024 January 28, 2023
Beginning Balance $ 17.4  $ 20.9 
Additions for tax positions of prior years 5.6  2.3 
Additions, based on tax positions related to current year 2.3  4.0 
Settlements (0.3) (0.1)
Lapses in statutes of limitation (3.0) (9.7)
Ending balance $ 22.0  $ 17.4 
It is possible that tax reserves will be reduced for audit settlements and statute expirations within the next 12 months. At this point it is not possible to estimate a range associated with the resolution of these audits. We do not expect any change to have a material impact to our consolidated financial statements.
As of February 3, 2024, we have recorded a liability for potential interest and penalties of $2.5 million.