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22. Income Taxes
We account for income taxes under the asset and liability method. We have recognized deferred tax
assets and liabilities for the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary
differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and
liabilities are recognized in income at the enactment date. We have not recorded deferred taxes when
earnings from foreign operations are considered to be indefinitely invested outside the U.S. Such amounts are
not significant. In the Consolidated Statements of Financial Position, the current deferred tax asset balance is
the net of all current deferred tax assets and current deferred tax liabilities. The noncurrent deferred tax liability
is the net of all noncurrent deferred tax assets and noncurrent deferred tax liabilities.
Tax Rate Reconciliation 2008 2007 2006
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 4.0 4.0 4.0
Other (1.6) (0.6) (1.0)
Effective tax rate 37.4% 38.4% 38.0%
Our effective income tax rate was 37.4 percent in 2008, 38.4 percent in 2007 and 38.0 percent in 2006.
The decrease in 2008 was primarily due to tax reserve reductions resulting from audit settlements and the
effective resolution of other issues. The 2008 effective income tax rate is also lower due to a comparatively
greater proportion of earnings subject to rate differences between taxing jurisdictions. These rate declines
were partially offset by lower capital market returns on investments used to economically hedge the market
risk in deferred compensation plans. Gains and losses from these investments are not taxable. The increase in
the 2007 effective rate from the prior year was primarily due to lower capital market returns on these
investments as compared to 2006.
Provision for Income Taxes: Expense (Benefit)
(millions) 2008 2007 2006
Current:
Federal $1,034 $1,568 $1,627
State/other 197 278 284
Total current 1,231 1,846 1,911
Deferred:
Federal 88 (67) (174)
State/other 3(3) (27)
Total deferred 91 (70) (201)
Total provision $1,322 $1,776 $1,710
Net Deferred Tax Asset/(Liability) January 31, February 2,
(millions) 2009 2008
Gross deferred tax assets:
Accrued and deferred compensation $ 420 $ 466
Allowance for doubtful accounts 390 220
Accruals and reserves not currently deductible 349 347
Self-insured benefits 289 271
Other 223 104
Total gross deferred tax assets 1,671 1,408
Gross deferred tax liabilities:
Property and equipment (1,234) (1,069)
Pension —(131)
Deferred credit card income (144) (94)
Other (55) (28)
Total gross deferred tax liabilities (1,433) (1,322)
Total net deferred tax asset/(liability) $ 238 $86
41
PART II