AUTOZONE INC Income Taxes Disclosure

Note E – Income Taxes

The components of operating income before income taxes are as follows:

​

The provision for income tax expense consisted of the following:

​

A reconciliation of the provision for income taxes to the amount computed by applying the federal statutory tax rate to income before income taxes is as follows:

​

For the year ended August 30, 2025, August 31, 2024, and August 26, 2023, the Company recognized excess tax benefits from stock option exercises of $58.2 million, $81.4 million, and $92.2 million, respectively.

The Company is subject to a tax on global intangible low-taxed income (“GILTI”) which is imposed on foreign earnings. The Company has made the election to record this tax as a period cost, thus has not adjusted the deferred tax assets or liabilities of its foreign subsidiaries for this tax.

​

Significant components of the Company's deferred tax assets and liabilities were as follows:

​

At August 30, 2025, and August 31, 2024, the Company had net operating loss (“NOL”) carryforwards available to reduce future taxable income totaling approximately $338.6 million ($33.2 million tax effected) and $309.8 million ($37.2 million tax effected), respectively. Certain NOLs have no expiration date and others will expire, if not utilized, in various years from fiscal 2026 through 2044. At August 30, 2025, and August 31, 2024, the Company had deferred tax assets for federal and state income tax credit carryforwards of $135.1 million and $141.7 million, respectively. Income tax credit carryforwards will expire, if not utilized, in various years from fiscal 2026 through 2051.

​

At August 30, 2025, and August 31, 2024, the Company had a valuation allowance of $11.3 million and $26.9 million, respectively, on deferred tax assets associated with NOL and tax credit carryforwards for which management has determined it is more likely than not that the deferred tax asset will not be realized. Management believes it is more likely than not that the remaining deferred tax assets will be fully realized given the extended carryforward periods referenced.

​

For the year ended August 30, 2025, the Company asserts indefinite reinvestment for basis differences and accumulated earnings through fiscal 2020 with respect to its foreign subsidiaries. The Company does not assert permanent reinvestment of fiscal 2021 through current year earnings with respect to its Mexican subsidiaries while maintaining its assertion of indefinite reinvestment of fiscal 2021 through current year earnings of other foreign subsidiaries. Where necessary, taxes resulting from foreign distributions of current and accumulated earnings (e.g., withholding taxes) have been considered in the Company’s provision for income taxes.

​

As of August 30, 2025, we have not recorded incremental income taxes for outside basis differences of $389.6 million in our investments in foreign subsidiaries, as these amounts are indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to the outside basis differences in these entities is not practicable.

​

Several countries where the Company operates have adopted the Organization for Economic Cooperation and Development ("OECD") framework implementing a 15% global minimum tax. This OECD framework, commonly referred to as Pillar Two, did not have a material impact on the Company’s income tax provision for the year ended August 30, 2025.

​

Pursuant to provisions under the Inflation Reduction Act, enacted in August of 2022, the Company purchased transferable federal tax credits during fiscal year 2025 from various counterparties. Such federal tax credits were purchased at negotiated discounts, resulting in an income tax benefit recorded during the year ended August 30, 2025. Receivables associated with transferable federal tax credits are recorded (netted) within taxes payable and deferred tax liabilities.

​

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law. The OBBBA creates new provisions that are applicable to the Company, including 100% bonus depreciation for qualifying assets placed in service after January 19, 2025, and full expensing of domestic research and experimental expenditures incurred in taxable years beginning after December 31, 2024. The Company does not expect any material impact from these provisions.

​

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

​

Included in the August 30, 2025, and August 31, 2024, balances are $17.5 million and $32.1 million, respectively, of unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate. The balances above also include amounts of $4.3 million and $3.8 million for August 30, 2025, and August 31, 2024, respectively, that are accounted for as reductions to deferred tax assets for NOL carryforwards and tax credit carryforwards. It is anticipated that in the event the associated uncertain tax positions are disallowed, the NOL carryforwards and tax credit carryforwards would be utilized to settle the liability.

​

The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. The Company had $3.8 million and $11.2 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at August 30, 2025, and August 31, 2024, respectively.

​

The Company files U.S. federal, U.S. state and local, and international income tax returns. With few exceptions, the Company is no longer subject to U.S. federal, U.S. state and local, or Non-U.S. examinations by tax authorities for fiscal year 2020 and prior. The Company is typically engaged in various tax examinations at any given time by U.S. federal, U.S. state and local, and Non-U.S. taxing jurisdictions. As of August 30, 2025, the Company estimates that the amount of unrecognized tax benefits could be reduced by approximately $0.9 million over the next twelve months as a result of tax audit settlements. While the Company believes that it is adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be determined at this time and could result in final settlements that differ from current estimates.