Annual report pursuant to Section 13 and 15(d)

Taxes

v3.3.1.900
Taxes
12 Months Ended
Jan. 30, 2016
Taxes Payable [Abstract]  
Taxes
Taxes
Income tax expense is as follows:
 
 
2015
 
2014
 
2013
 
Current
 
Deferred
 
Total
 
Current
 
Deferred
 
Total
 
Current
 
Deferred
 
Total
 
(millions)
Federal
$
536

 
$

 
$
536

 
$
743

 
$
28

 
$
771

 
$
834

 
$
(76
)
 
$
758

State and local
72

 

 
72

 
92

 
1

 
93

 
105

 
(59
)
 
46

 
$
608

 
$

 
$
608

 
$
835

 
$
29

 
$
864

 
$
939

 
$
(135
)
 
$
804



The income tax expense reported differs from the expected tax computed by applying the federal income tax statutory rate of 35% for 2015, 2014 and 2013 to income before income taxes. The reasons for this difference and their tax effects are as follows:
 
 
2015
 
2014
 
2013
 
(millions)
Expected tax
$
588

 
$
836

 
$
801

State and local income taxes, net of federal income tax benefit
43

 
59

 
45

Historic rehabilitation tax credit
(12
)
 
(20
)
 
(16
)
Change in valuation allowance
3

 
1

 
(16
)
Other
(14
)
 
(12
)
 
(10
)
 
$
608

 
$
864

 
$
804



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 2014 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 30,
2016
 
January 31,
2015
 
(millions)
Deferred tax assets
 
 
 
Post employment and postretirement benefits
$
536

 
$
586

Accrued liabilities accounted for on a cash basis for tax purposes
340

 
305

Long-term debt
73

 
83

Unrecognized state tax benefits and accrued interest
79

 
76

State operating loss and credit carryforwards
82

 
80

Other
206

 
175

Valuation allowance
(27
)
 
(24
)
Total deferred tax assets
1,289

 
1,281

Deferred tax liabilities
 
 
 
Excess of book basis over tax basis of property and equipment
(1,485
)
 
(1,510
)
Merchandise inventories
(606
)
 
(585
)
Intangible assets
(345
)
 
(294
)
Other
(330
)
 
(335
)
Total deferred tax liabilities
(2,766
)
 
(2,724
)
Net deferred tax liability
$
(1,477
)
 
$
(1,443
)


The valuation allowance at January 30, 2016 and January 31, 2015 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 $3 million for 2015 and an increase of $1 million for 2014.
As of January 30, 2016, the Company had no federal net operating loss carryforwards, state net operating loss carryforwards of $615 million, and state credit carryforwards of $30 million, which will expire between 2016 and 2035.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
 
January 30,
2016
 
January 31,
2015
 
February 1,
2014
 
(millions)
Balance, beginning of year
$
172

 
$
189

 
$
170

Additions based on tax positions related to the current year
30

 
33

 
37

Additions for tax positions of prior years

 

 

Reductions for tax positions of prior years
(7
)
 
(15
)
 
(1
)
Settlements
(3
)
 
(23
)
 
(1
)
Statute expirations
(14
)
 
(12
)
 
(16
)
Balance, end of year
$
178

 
$
172

 
$
189

Amounts recognized in the Consolidated Balance Sheets at
   January 30, 2016, January 31, 2015 and February 1, 2014
 
 
 
 
 
Current income taxes
$
12

 
$
11

 
$
31

Long-term deferred income taxes
5

 
6

 
11

Other liabilities
161

 
155

 
147

 
$
178

 
$
172

 
$
189



As of January 30, 2016 and January 31, 2015, the amount of unrecognized tax benefits, net of deferred tax assets, that, if recognized would affect the effective income tax rate, was $115 million and $112 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 an expense of $1 million for 2015, a credit of $3 million for 2014, and an expense of $9 million for 2013, are reflected in income tax expense.
The Company had $53 million and $52 million accrued for the payment of federal, state and local interest and penalties at January 30, 2016 and January 31, 2015, 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 30, 2016 and January 31, 2015 are insignificant. At January 30, 2016, $48 million of federal, state and local interest and penalties is included in other liabilities and $5 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 2012. 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 2006. 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.