Best Buy 2006 Annual Report Download - page 93

$ in millions, except per share amounts
79
PART II
9. Income Taxes
The following is a reconciliation of the federal statutory
income tax rate to income tax expense from continuing
operations for the past three fiscal ye ars:
2006 20052004
Federal income tax at the
statutory rate $603 $ 505 $ 454
State income taxes, net of
federal benefit 34 29 27
Distributed earnings of
foreign subsidiaries — — 13
Benefit from foreign
operations (37 ) (7)(3)
Non-taxable interest income (28 ) (22)(19)
Other 9 4 24
Income taxexpense $581 $ 509 $ 496
Effective income tax rate 33.7% 35.3% 38.3%
Our income tax returns, like those of most companies, are
periodically audited by domestic and foreign tax authorities.
These audits include questions regarding our tax filing
positions, including the timing and amount of deductions
and the allocation of income among various tax
jurisdictions. At any one time, multiple tax years are subject
to audit bythe various tax authorities. In evaluating the
exposures associatedwith our various tax filing positions,
we record reserves forprobable exposures. A number of
years may elapse before aparticular matter, for which we
have established a reserve, is audited and fully resolved or
clarified.We adjust our tax contingencies reserve and
income tax provision in the period in which actual results of
asettlement with tax authoritiesdiffers from our established
reserve, the statute of limitations expires for the relevant
taxing authority to examine the tax position or when more
information becomes available. We include our tax
contingencies reserve, including accrued penalties and
interest, in accrued income taxes on our consolidated
balance sheets and in income tax expense in our
consolidated statements of earnings.
During fiscal 2006 and 2005, we adjusted our tax
contingencies reserve based on theresolutionand
clarification of certain federal and state income tax matters,
including favorable rulings from the IRS and certain state
jurisdictions. The IRS has completed its audits through fiscal
2002.All tax years since the acquisition of Future Shop in
fiscal2002 are still subject to audit with Revenue Canada.
Income tax expense was comprised ofthe following for the
past three fiscal years:
2006 2005 2004
Current:
Federal $640 $ 502 $ 456
State 78 36 49
Foreign 14 (1 ) 5
732 537 510
Deferred:
Federal (131 ) (4 ) (9)
State (14 ) (20 ) (1)
Foreign(6 ) (4 ) (4)
(151) (28 ) (14)
Income tax expense $581 $ 509 $ 496
The American Jobs Creation Act of 2004 (Act) allows U.S.
multinational companies a one-time repatriation of
accumulated income earned outside the U.S. at an effective
income tax rate of 5.25% rather than the normal U.S.
income tax rate of 35%, provided that certain criteria,
including qualified U.S. reinvestment, are met.
FSP No. FAS 109-2, Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004, was issued in
December 2004. This Staff Position providesguidance on
accounting for special reductions in taxes included in the
Act. FSP No. FAS109-2 clarifies that a company’s
consideration of the Act does not overrule its prior
contention that the foreign earnings were permanently
reinvested. Also, FSP No. FAS 109-2 indicates that
companies should recognize tax expense when a decision is
made to repatriate some orall foreign earnings, and
provide disclosure about the possible range of repatriation
if the analysis is not yet complete.
We did not repatriate any foreign income during fiscal
2006, and we do not expect to repatriate any income
earned outside the U.S. during fiscal 2007 and, therefore,