Entity information:
INCOME TAXES
 
The significant components of income tax expense (benefit) are as follows:
 
 
Fiscal year ended
(in thousands)
 
July 29,
2017
 
July 30,
2016
 
August 1,
2015
 
 
 
 
 
 
 
Current:
 
 
 
 
 
 

Federal
 
$
(38,337
)
 
$
(36,557
)
 
$
73,928

State
 
(8,567
)
 
(7,691
)
 
7,955

Foreign
 
926

 
5,948

 
980

 
 
(45,978
)
 
(38,300
)
 
82,863

Deferred:
 
 
 
 
 
 

Federal
 
(148,359
)
 
(78,804
)
 
(60,780
)
State
 
(22,357
)
 
(18,189
)
 
(6,080
)
Foreign
 
(436
)
 
(5,848
)
 
(2,876
)
 
 
(171,152
)
 
(102,841
)
 
(69,736
)
Income tax expense (benefit)
 
$
(217,130
)
 
$
(141,141
)
 
$
13,127


    
The significant components of earnings (loss) before income taxes are as follows:
 
 
Fiscal year ended
(in thousands)
 
July 29,
2017
 
July 30,
2016
 
August 1,
2015
 
 
 
 
 
 
 
United States
 
$
(752,705
)
 
$
(542,310
)
 
$
38,399

Foreign
 
3,816

 
(4,941
)
 
(10,323
)
Earnings (loss) before income taxes
 
$
(748,889
)
 
$
(547,251
)
 
$
28,076



A reconciliation of income tax expense (benefit) to the amount calculated based on the federal and state statutory rates is as follows:
 
 
Fiscal year ended
(in thousands)
 
July 29,
2017
 
July 30,
2016
 
August 1,
2015
 
 
 
 
 
 
 
Income tax expense (benefit) at statutory rate
 
$
(262,111
)
 
$
(191,538
)
 
$
9,827

State income taxes, net of federal income tax benefit
 
(21,132
)
 
(15,480
)
 
1,235

Impact of non-deductible expenses, including goodwill impairment
 
64,875

 
64,372

 
3,330

Tax expense (benefit) related to tax settlements and other changes in tax liabilities
 
(2,022
)
 
(554
)
 
(555
)
Impact of foreign tax differential
 
51

 
377

 
(706
)
Unbenefitted losses of foreign subsidiary
 
703

 
1,444

 
—

Other
 
2,506

 
238

 
(4
)
Total
 
$
(217,130
)
 
$
(141,141
)
 
$
13,127

Effective tax rate
 
29.0
%
 
25.8
%
 
46.8
%

 
Our effective income tax rates of 29.0% and 25.8% on the losses for fiscal years 2017 and 2016 were less than the federal statutory tax rate of 35%. No income tax benefits exist related to the goodwill impairment charges of $196.2 million recorded in fiscal year 2017 and $199.2 million recorded in fiscal year 2016. Excluding the impact of the goodwill impairment charges, our effective income tax rates were 39.3% for fiscal year 2017 and 40.6% for fiscal year 2016, which exceeded the federal statutory tax rate due primarily to state income taxes. Our effective income tax rate of 46.8% on the earnings for fiscal year 2015 exceeded the federal statutory tax rate due primarily to state income taxes and the non-deductible portion of transaction and other costs incurred in connection with the MyTheresa acquisition.

We have and intend to continue to reinvest all earnings generated by our foreign operations outside of the U.S. As such, no provision for federal or state income taxes is required as of July 29, 2017. If our intentions change or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of these undistributed earnings and our effective tax rate would increase. Determination of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated, if any, is not practicable because the calculation is complex and subject to significant volatility.

Significant components of our net deferred income tax asset (liability) are as follows:
(in thousands)
 
July 29,
2017
 
July 30,
2016
 
 
 
 
 
Deferred income tax assets:
 
 

 
 

Accruals and reserves
 
$
34,727

 
$
31,628

Employee benefits
 
179,565

 
202,778

Other
 
72,882

 
36,406

Total deferred tax assets
 
$
287,174

 
$
270,812

 
 
 
 
 
Deferred income tax liabilities:
 
 

 
 

Inventory
 
$
(13,264
)
 
$
(10,125
)
Depreciation and amortization
 
(322,184
)
 
(285,563
)
Intangible assets
 
(1,083,459
)
 
(1,241,497
)
Other
 
(25,100
)
 
(30,420
)
Total deferred tax liabilities
 
(1,444,007
)
 
(1,567,605
)
Net deferred income tax liability
 
$
(1,156,833
)
 
$
(1,296,793
)

 
The net deferred tax liability of $1,156.8 million at July 29, 2017 decreased from $1,296.8 million at July 30, 2016.  This decrease of $140.0 million was comprised primarily of (i) $117.4 million decrease in deferred tax liabilities resulting from impairment charges incurred in connection with our tradenames and (ii) $38.3 million increase in deferred tax assets related to a federal net operating loss ("NOL") carryforward.

At July 29, 2017, the Company has gross U.S. federal NOLs of $97.7 million and credit carryforwards of $2.0 million. Gross state NOLs are $28.5 million and state credit carryforwards are $1.7 million. The federal NOLs and credit carryforwards will expire in 2037 while the state NOLs and credit carryforwards will expire beginning in 2021 through 2037, if not utilized. All NOLs are expected to be used prior to the end of the carryforward period. A gross net operating loss of $8.5 million exists in the foreign jurisdiction of Luxembourg. A full valuation allowance has been set up against the Luxembourg NOL.

The Company assesses whether deferred tax assets should be recognized based upon the consideration of both positive and negative evidence. Although realization is not assured, the Company believes that the realization of the recognized deferred tax assets is more likely than not based on expectations of future taxable income.

At July 29, 2017, the gross amount of unrecognized tax benefits was $2.2 million ($1.4 million of which would impact our effective tax rate, if recognized). We classify interest and penalties as a component of income tax expense (benefit) and our liability for accrued interest and penalties was $0.4 million at July 29, 2017 and $0.4 million at July 30, 2016. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(in thousands)
 
July 29,
2017
 
July 30,
2016
 
 
 
 
 
Balance at beginning of fiscal year
 
$
3,661

 
$
1,854

Gross amount of decreases for prior year tax positions
 
(3,005
)
 
(1,290
)
Gross amount of increases for current year tax positions
 
1,533

 
3,097

Balance at end of fiscal year
 
$
2,189

 
$
3,661


 
We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. The Internal Revenue Service ("IRS") finalized its audits of our fiscal year 2012 and short-year 2013 (prior to the Acquisition) federal income tax returns. With respect to state, local and foreign jurisdictions, with limited exceptions, we are no longer subject to income tax audits for fiscal years before 2013.  We believe our recorded tax liabilities as of July 29, 2017 are sufficient to cover any potential assessments made by the IRS or other taxing authorities and we will continue to review our recorded tax liabilities for potential audit assessments based upon subsequent events, new information and future circumstances.  We believe it is reasonably possible that adjustments to the amounts of our unrecognized tax benefits could occur within the next 12 months as a result of settlements with tax authorities or expiration of statutes of limitations.  At this time, we do not believe such adjustments will have a material impact on our Consolidated Financial Statements.

Subsequent to the Acquisition, Parent and its subsidiaries, including the Company, file U.S. federal income taxes as a consolidated group. The Company has elected to be treated as a corporation for U.S. federal income tax purposes and all operations of Parent are conducted through Holdings and its subsidiaries, including the Company. Income taxes incurred by Parent are reflected by the Company and its subsidiaries in the preparation of our Consolidated Financial Statements. There are no differences in current and deferred income taxes between the Company and Parent.