Annual report pursuant to Section 13 and 15(d)

Taxes

v2.4.1.9
Taxes
12 Months Ended
Jan. 31, 2015
Taxes Payable [Abstract]  
Taxes
Taxes
Income tax expense is as follows:
 
 
2014
 
2013
 
2012
 
Current
 
Deferred
 
Total
 
Current
 
Deferred
 
Total
 
Current
 
Deferred
 
Total
 
(millions)
Federal
$
767

 
$
5

 
$
772

 
$
859

 
$
(98
)
 
$
761

 
$
697

 
$
2

 
$
699

State and local
95

 
(3
)
 
92

 
107

 
(64
)
 
43

 
70

 
(2
)
 
68

 
$
862

 
$
2

 
$
864

 
$
966

 
$
(162
)
 
$
804

 
$
767

 
$

 
$
767



The income tax expense reported differs from the expected tax computed by applying the federal income tax statutory rate of 35% for 2014, 2013 and 2012 to income before income taxes. The reasons for this difference and their tax effects are as follows:
 
 
2014
 
2013
 
2012
 
(millions)
Expected tax
$
836

 
$
801

 
$
736

State and local income taxes, net of federal income tax benefit
59

 
45

 
47

Historic rehabilitation tax credit
(20
)
 
(16
)
 

Change in valuation allowance
1

 
(16
)
 
(2
)
Other
(12
)
 
(10
)
 
(14
)
 
$
864

 
$
804

 
$
767



The Company participates in the Internal Revenue Service (“IRS”) Compliance Assurance Program ("CAP"). As part of the CAP, tax years are audited on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. The IRS has completed examinations of 2013 and all prior tax years.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
 
 
January 31,
2015
 
February 1,
2014
 
(millions)
Deferred tax assets
 
 
 
Post employment and postretirement benefits
$
586

 
$
392

Accrued liabilities accounted for on a cash basis for tax purposes
320

 
289

Long-term debt
83

 
90

Unrecognized state tax benefits and accrued interest
76

 
84

State operating loss and credit carryforwards
80

 
79

Other
160

 
160

Valuation allowance
(24
)
 
(23
)
Total deferred tax assets
1,281

 
1,071

Deferred tax liabilities
 
 
 
Excess of book basis over tax basis of property and equipment
(1,510
)
 
(1,569
)
Merchandise inventories
(585
)
 
(587
)
Intangible assets
(294
)
 
(263
)
Post employment benefits

 
(28
)
Other
(335
)
 
(297
)
Total deferred tax liabilities
(2,724
)
 
(2,744
)
Net deferred tax liability
$
(1,443
)
 
$
(1,673
)


The valuation allowance at January 31, 2015 and February 1, 2014 relates to net deferred tax assets for state net operating loss and credit carryforwards. The net change in the valuation allowance amounted to an increase of $1 million for 2014 and a decrease of $16 million for 2013.
As of January 31, 2015, the Company had no federal net operating loss carryforwards, state net operating loss carryforwards of $595 million and state credit carryforwards of $29 million, which will expire between 2015 and 2034.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
 
January 31,
2015
 
February 1,
2014
 
February 2,
2013
 
(millions)
Balance, beginning of year
$
189

 
$
170

 
$
179

Additions based on tax positions related to the current year
33

 
37

 
18

Additions for tax positions of prior years

 

 
18

Reductions for tax positions of prior years
(15
)
 
(1
)
 
(19
)
Settlements
(23
)
 
(1
)
 
(9
)
Statute expirations
(12
)
 
(16
)
 
(17
)
Balance, end of year
$
172

 
$
189

 
$
170

Amounts recognized in the Consolidated Balance Sheets at
   January 31, 2015, February 1, 2014 and February 2, 2013
 
 
 
 
 
Current income taxes
$
11

 
$
31

 
$
20

Long-term deferred income taxes
6

 
11

 
23

Other liabilities
155

 
147

 
127

 
$
172

 
$
189

 
$
170



As of January 31, 2015 and February 1, 2014, the amount of unrecognized tax benefits, net of deferred tax assets, that, if recognized would affect the effective income tax rate, was $112 million and $123 million, respectively.
The Company classifies unrecognized tax benefits not expected to be settled within one year as other liabilities on the Consolidated Balance Sheets.
The Company classifies federal, state and local interest and penalties not expected to be settled within one year as other liabilities on the Consolidated Balance Sheets and follows a policy of recognizing all interest and penalties related to unrecognized tax benefits in income tax expense. Federal, state and local interest and penalties, which amounted to a credit of $3 million for 2014, an expense of $9 million for 2013, and a credit of $10 million for 2012, are reflected in income tax expense.
The Company had $52 million and $63 million accrued for the payment of federal, state and local interest and penalties at January 31, 2015 and February 1, 2014, respectively. The accrued federal, state and local interest and penalties primarily relates to state tax issues and the amount of penalties paid in prior periods, and the amount of penalties accrued at January 31, 2015 and February 1, 2014 are insignificant. At January 31, 2015, $49 million of federal, state and local interest and penalties is included in other liabilities and $3 million is included in current income taxes on the Consolidated Balance Sheets.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2011. With respect to state and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for years before 2005. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been accrued for any adjustments that are expected to result from the years still subject to examination.