6. Income taxes
The provision for income taxes consists of the following:
| Fiscal | Fiscal | Fiscal | ||||||||||
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(In thousands) |
2016 | 2015 | 2014 | |||||||||
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Current: |
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Federal |
$ | 194,199 | $ | 163,048 | $ | 128,159 | ||||||
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State |
24,835 | 18,694 | 16,909 | |||||||||
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Total current |
219,034 | 181,742 | 145,068 | |||||||||
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Deferred: |
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Federal |
24,480 | 6,981 | 8,392 | |||||||||
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State |
2,440 | (1,291 | ) | 714 | ||||||||
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Total deferred |
26,920 | 5,690 | 9,106 | |||||||||
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Provision for income taxes |
$ | 245,954 | $ | 187,432 | $ | 154,174 | ||||||
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A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:
| Fiscal 2016 |
Fiscal 2015 |
Fiscal 2014 |
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Federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
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State effective rate, net of federal tax benefit |
2.8 | % | 2.2 | % | 2.8 | % | ||||||
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Other |
(0.3 | %) | (0.3 | %) | (0.3 | %) | ||||||
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Effective tax rate |
37.5 | % | 36.9 | % | 37.5 | % | ||||||
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Significant components of the Company’s deferred tax assets and liabilities are as follows:
| January 28, | January 30, | |||||||
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(In thousands) |
2017 | 2016 | ||||||
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Deferred tax assets: |
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Reserves not currently deductible |
$ | 33,805 | $ | 27,734 | ||||
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Employee benefits |
15,206 | 10,594 | ||||||
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Credit carryforwards |
398 | 441 | ||||||
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Accrued liabilities |
10,539 | 10,704 | ||||||
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Inventory valuation |
3,630 | 257 | ||||||
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Total deferred tax assets |
63,578 | 49,730 | ||||||
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Deferred tax liabilities: |
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Property and equipment |
73,454 | 48,898 | ||||||
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Deferred rent obligation |
62,252 | 49,548 | ||||||
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Prepaid expenses |
14,370 | 10,811 | ||||||
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Total deferred tax liabilities |
150,076 | 109,257 | ||||||
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Net deferred tax liability |
$ | (86,498 | ) | $ | (59,527 | ) | ||
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At January 28, 2017 and January 30, 2016, the Company had $398 and $441, respectively, of credit carryforwards for state income tax purposes.
The Company accounts for uncertainty in income taxes in accordance with the ASC rules for income taxes. The reserve for uncertain tax positions was $3,305 and $2,262 at January 28, 2017 and January 30, 2016, respectively. The balance is the Company’s best estimate of the potential liability for uncertain tax positions. A reconciliation of the Company’s unrecognized tax benefits, excluding interest and penalties, is as follows:
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(In thousands) |
January 28, 2017 |
January 30, 2016 |
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Balance at beginning of the period |
$ | 2,262 | $ | 1,414 | ||||
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Increase due to a current year position |
1,048 | 900 | ||||||
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Decrease due to a prior period position |
(5 | ) | (52 | ) | ||||
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Balance at the end of the period |
$ | 3,305 | $ | 2,262 | ||||
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The Company acknowledges that the amount of unrecognized tax benefits may change in the next twelve months. However, it does not expect the change to have a significant impact on its consolidated financial statements. Income tax-related interest and penalties were insignificant for fiscal 2016 and 2015.
The Company files tax returns in the U.S. Federal and State jurisdictions. The Company is no longer subject to U.S. Federal examinations by the Internal Revenue Services for years before 2013 and is no longer subject to examinations by State authorities before 2012.