ADVANCE AUTO PARTS INC Income Taxes Disclosure
The Company has adopted ASU 2023-09 on a prospective basis, which resulted in additional income tax disclosures for the rate reconciliation and related to income taxes paid for 2025. Given that the Company has elected to adopt ASU 2023-09 prospectively, the 2024 and 2023 rate reconciliation is not disaggregated in accordance with ASU 2023-09 and the income taxes paid are not presented by jurisdiction.
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes key elements of the Tax Cuts and Jobs Act permanent, including 100% bonus depreciation and the business interest expense limitation, among others. The Company has determined the OBBBA has an immaterial impact to the Company’s provision for income taxes and deferred tax balances. ASC 740, “Income Taxes”, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted, which occurred during the Company’s second quarter of fiscal 2025. Therefore, the Company has reflected the effect of the OBBBA within the provision for income taxes for the fiscal year ended January 3, 2026.
Provision for Income Taxes
Provision for income taxes from continuing operations consisted of the following:
|
|
Current |
|
|
Deferred |
|
|
Total |
|
|||
2025 |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
(102 |
) |
|
$ |
(29 |
) |
|
$ |
(131 |
) |
State |
|
|
(23 |
) |
|
|
(13 |
) |
|
|
(36 |
) |
Foreign |
|
|
9 |
|
|
|
(1 |
) |
|
|
8 |
|
|
|
$ |
(116 |
) |
|
$ |
(43 |
) |
|
$ |
(159 |
) |
2024 |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
2 |
|
|
$ |
(172 |
) |
|
$ |
(170 |
) |
State |
|
|
3 |
|
|
|
(30 |
) |
|
|
(27 |
) |
Foreign |
|
|
17 |
|
|
|
(1 |
) |
|
|
16 |
|
|
|
$ |
22 |
|
|
$ |
(203 |
) |
|
$ |
(181 |
) |
2023 |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
3 |
|
|
$ |
(29 |
) |
|
$ |
(26 |
) |
State |
|
|
2 |
|
|
|
(8 |
) |
|
|
(6 |
) |
Foreign |
|
|
15 |
|
|
|
— |
|
|
|
15 |
|
|
|
$ |
20 |
|
|
$ |
(37 |
) |
|
$ |
(17 |
) |
Disaggregation of loss before income tax expense from continuing operations for the fiscal year ended January 3, 2026:
|
|
Domestic |
|
|
Foreign |
|
|
Total |
|
|||
(Loss) income before income tax expense from continuing operations |
|
$ |
(122 |
) |
|
$ |
31 |
|
|
$ |
(91 |
) |
Federal income tax benefit |
|
|
131 |
|
|
|
— |
|
|
|
131 |
|
State income tax benefit |
|
|
36 |
|
|
|
— |
|
|
|
36 |
|
Foreign income tax expense |
|
|
— |
|
|
|
(8 |
) |
|
|
(8 |
) |
Net income from continuing operations |
|
$ |
45 |
|
|
$ |
23 |
|
|
$ |
68 |
|
The provision for income taxes differed from the amount computed by applying the federal statutory income tax rate due to:
|
|
Year Ended |
|
|||||
|
|
January 3, 2026 |
|
|||||
|
|
Amount |
|
|
Percent |
|
||
U.S. Federal Statutory Tax Rate |
|
$ |
(19 |
) |
|
|
21.0 |
% |
|
|
|
|
|
|
|
||
State and Local Income Taxes, Net of Federal Income Tax Effect(1) |
|
|
(29 |
) |
|
|
31.5 |
|
|
|
|
|
|
|
|
||
Foreign Tax Effects |
|
|
|
|
|
|
||
Canada |
|
|
|
|
|
|
||
Statutory tax rate difference |
|
|
(1 |
) |
|
|
1.1 |
|
Provincial taxes |
|
|
2 |
|
|
|
(2.3 |
) |
|
|
|
|
|
|
|
||
Other foreign tax effects |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
||
Effect of Changes in Tax Laws or Rates Enacted in the Current Period |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
||
Effect of Cross-Border Tax Laws |
|
|
|
|
|
|
||
Global intangible low-taxed income |
|
|
14 |
|
|
|
(15.4 |
) |
|
|
|
|
|
|
|
||
Tax Credits |
|
|
|
|
|
|
||
Research and development tax credit |
|
|
(2 |
) |
|
|
2.5 |
|
Work opportunity tax credit |
|
|
(4 |
) |
|
|
4.5 |
|
Empowerment Zone credit |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
||
Changes in Valuation Allowance |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
||
Nontaxable or Nondeductible Items |
|
|
|
|
|
|
||
Share-based payment awards |
|
|
2 |
|
|
|
(2.0 |
) |
Other nontaxable or nondeductible items |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
||
Changes in Unrecognized Tax Benefits |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
||
Other Adjustments |
|
|
|
|
|
|
||
Reduction of tax basis in assets |
|
|
41 |
|
|
|
(45.4 |
) |
Stock compensation expense |
|
|
4 |
|
|
|
(4.0 |
) |
Capital loss(2) |
|
|
(164 |
) |
|
|
180.2 |
|
Change in gain on divestiture |
|
|
(4 |
) |
|
|
4.3 |
|
Intercompany profit elimination |
|
|
2 |
|
|
|
(2.3 |
) |
Other Adjustments |
|
|
(1 |
) |
|
|
1.3 |
|
Effective Tax Rate |
|
$ |
(159 |
) |
|
|
175.0 |
% |
(1) State taxes in Florida, Georgia, Illinois, Maryland, New York, Pennsylvania, and Virginia make up the majority (greater than 50 percent) of the tax effect in this category.
(2) In fiscal year 2025, the Company completed an internal legal entity restructuring event which was treated as a taxable stock disposition for U.S. federal income tax purposes. As a result, the Company recognized a capital loss deduction which was utilized against capital gain income.
|
|
Year Ended |
|
|||||
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
||
Income before provision for income taxes at statutory U.S. federal income tax rate (21% for 2024 and 2023) |
|
$ |
(161 |
) |
|
$ |
(10 |
) |
State income taxes, net of federal income tax |
|
|
(22 |
) |
|
|
(6 |
) |
Other, net |
|
|
2 |
|
|
|
(1 |
) |
Provision for income taxes |
|
$ |
(181 |
) |
|
$ |
(17 |
) |
Income Taxes Paid
Income taxes paid, net of refunds, consisted of the following:
|
|
Year Ended |
|
|
|
|
January 3, 2026 |
|
|
Federal |
|
$ |
— |
|
State |
|
|
(1 |
) |
Foreign |
|
|
14 |
|
Total |
|
$ |
13 |
|
Income taxes paid (net of refunds) was $37 million and $99 million for the fiscal years 2024 and 2023, respectively.
Income taxes paid (net of refunds) exceeded 5 percent of total income taxes paid (net of refunds) in the following jurisdictions:
|
|
Year Ended |
|
|
|
|
January 3, 2026 |
|
|
State |
|
|
|
|
North Carolina |
|
$ |
(1 |
) |
Virginia |
|
|
(1 |
) |
Texas |
|
|
1 |
|
Total |
|
$ |
(1 |
) |
|
|
|
|
|
Foreign |
|
|
|
|
Canada |
|
|
1 |
|
Puerto Rico |
|
|
2 |
|
India |
|
|
1 |
|
Taiwan |
|
|
9 |
|
Total |
|
$ |
13 |
|
Deferred Income Tax Assets (Liabilities)
Temporary differences that give rise to significant deferred income tax assets (liabilities) were as follows:
|
|
January 3, 2026 |
|
|
December 28, 2024 |
|
||
Deferred income tax assets: |
|
|
|
|
|
|
||
Accrued expenses not currently deductible for tax |
|
$ |
53 |
|
|
$ |
39 |
|
Share-based compensation |
|
|
10 |
|
|
|
11 |
|
Accrued medical and workers compensation |
|
|
8 |
|
|
|
6 |
|
Net operating loss carryforwards |
|
|
122 |
|
|
|
2 |
|
Operating lease liabilities |
|
|
561 |
|
|
|
598 |
|
Interest expense limitation |
|
|
34 |
|
|
|
— |
|
Tax credit carryforwards |
|
|
13 |
|
|
|
— |
|
State capital loss carryforward |
|
|
16 |
|
|
|
— |
|
Other, net |
|
|
11 |
|
|
|
9 |
|
Total deferred income tax assets before valuation allowances |
|
|
828 |
|
|
|
665 |
|
Less: Valuation allowance |
|
|
(22 |
) |
|
|
(5 |
) |
Total deferred income tax assets |
|
|
806 |
|
|
|
660 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
||
Property and equipment |
|
|
(64 |
) |
|
|
(9 |
) |
Inventories |
|
|
(224 |
) |
|
|
(182 |
) |
Intangible assets |
|
|
(95 |
) |
|
|
(92 |
) |
Operating lease right-of-use assets |
|
|
(535 |
) |
|
|
(570 |
) |
Reduction of tax basis in assets |
|
|
(30 |
) |
|
|
— |
|
Total deferred income tax liabilities |
|
|
(948 |
) |
|
|
(853 |
) |
Net deferred income tax liabilities |
|
$ |
(142 |
) |
|
$ |
(193 |
) |
As of January 3, 2026 and December 28, 2024, the Company’s net operating loss (“NOL”) carryforwards comprised state NOLs of $664 million and $106 million, respectively. Federal NOL carryforwards were $449 million as of January 3, 2026. There were no Federal NOL carryforwards as of December 28, 2024. State NOLs may be used to reduce future taxable income and may expire in various years based on jurisdiction, whereas federal NOLs are carried forward indefinitely. Due to uncertainties related to the realization of these NOLs in certain jurisdictions, as well as other credits available, the Company has recorded a valuation allowance of $18 million as of January 3, 2026 and $2 million as of December 28, 2024. In addition, the Company recorded a $4 million and $3 million valuation allowance on foreign tax credit carryforwards as of January 3, 2026 and December 28, 2024, respectively. The amount of deferred income tax assets realizable could change in the future if projections of future taxable income change.
The Company has not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested outside of the U.S. As of January 3, 2026 and December 28, 2024, these accumulated net earnings generated by foreign operations were $113 million and $93 million, respectively, which did not include earnings deemed to be repatriated as part of the U.S. Tax Cuts and Jobs Act. It is not practicable to determine the income tax liability that would be payable if such earnings were repatriated.
Unrecognized Tax Benefits
The following table summarizes the activity of the Company’s gross unrecognized tax benefits:
|
|
January 3, 2026 |
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|||
Unrecognized tax benefits, beginning of period |
|
$ |
16 |
|
|
$ |
11 |
|
|
$ |
15 |
|
Increases related to prior period tax positions |
|
|
2 |
|
|
|
6 |
|
|
|
— |
|
Increases related to current period tax positions |
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
Expiration of statute of limitations |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
Unrecognized tax benefits, end of period |
|
$ |
17 |
|
|
$ |
16 |
|
|
$ |
11 |
|
As of January 3, 2026, December 28, 2024, and December 30, 2023, the entire amount of unrecognized tax benefits, if recognized, would reduce the Company’s annual effective tax rate of 175.0%, 23.6% and 36.4%, respectively. During 2025, the Company recorded income tax-related interest and penalty expense of $0.6 million, and in 2024 and 2023, the Company recorded income tax-related interest and penalty expense of $0.6 million and benefit of $0.2 million, respectively, due to uncertain tax positions included in the Provision for income taxes in the accompanying consolidated statements of operations. As of January 3, 2026 and December 28, 2024, the Company recorded a liability for potential interest of $4 million and $3 million, respectively. Liabilities for potential penalties of were immaterial in all periods presented. The Company does not provide for any penalties associated with tax contingencies unless considered probable of assessment. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2022.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Feb 13, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Mar 12, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 22, 2021 | |
| 2019 | Feb 18, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 21, 2018 | |
| 2016 | Feb 28, 2017 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.