BEST BUY CO INCBBY
BEST BUY CO INC Income Taxes Disclosure
Income Taxes
Reconciliation of the federal statutory income tax rate to the effective tax rate was as follows ($ in millions):
| 2026 | |||||||||||
| Amount | Percent | ||||||||||
| U.S. federal income tax at the statutory rate | $ | 295 | 21.0 | % | |||||||
State and local income taxes, net of federal income tax effect(1) | 38 | 2.7 | % | ||||||||
| Foreign tax effects: | |||||||||||
| China - Statutory tax rate differential | (20) | (1.4) | % | ||||||||
| Other foreign jurisdictions | 8 | 0.6 | % | ||||||||
| Effect of cross-border tax laws, net of related foreign tax credits: | |||||||||||
| Subpart F inclusion | 19 | 1.3 | % | ||||||||
| Other | (1) | (0.1) | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Goodwill impairment | 25 | 1.8 | % | ||||||||
| Other | 11 | 0.8 | % | ||||||||
| Other adjustments: | |||||||||||
| Exit of a component of Best Buy Health business | (27) | (1.9) | % | ||||||||
| Other | (11) | (0.8) | % | ||||||||
| Effective income tax rate | $ | 337 | 24.0 | % | |||||||
(1)State and local income taxes in California, Oregon, Texas, New York and Illinois contributed to the majority (greater than 50%) of the tax effect in this category.
Reconciliations of prior year federal statutory income tax rate to the effective tax rate were as follows ($ in millions):
| 2025 | 2024 | ||||||||||
| Federal income tax at the statutory rate | $ | 272 | $ | 340 | |||||||
| State income taxes, net of federal benefit | 52 | 57 | |||||||||
| Change in unrecognized tax benefits | (5) | (6) | |||||||||
| Expense (benefit) from foreign operations | 3 | (5) | |||||||||
| Tax credits | (23) | (13) | |||||||||
| Goodwill impairments (non-deductible) | 63 | - | |||||||||
| Other | 10 | 8 | |||||||||
| Income tax expense | $ | 372 | $ | 381 | |||||||
| Effective income tax rate | 28.7 | % | 23.5 | % | |||||||
Earnings before income tax expense and equity in income of affiliates by jurisdiction were as follows ($ in millions):
| 2026 | 2025 | 2024 | |||||||||||||||
| United States | $ | 1,223 | $ | 1,095 | $ | 1,389 | |||||||||||
| Foreign | 181 | 200 | 232 | ||||||||||||||
| Earnings before income tax expense and equity in income of affiliates | $ | 1,404 | $ | 1,295 | $ | 1,621 | |||||||||||
Income tax expense (benefit) was comprised of the following ($ in millions):
| 2026 | 2025 | 2024 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 207 | $ | 341 | $ | 452 | |||||||||||
| State | 42 | 67 | 104 | ||||||||||||||
| Foreign | 28 | 23 | 39 | ||||||||||||||
| 277 | 431 | 595 | |||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 55 | (55) | (177) | ||||||||||||||
| State | 4 | (7) | (37) | ||||||||||||||
| Foreign | 1 | 3 | - | ||||||||||||||
| 60 | (59) | (214) | |||||||||||||||
| Total income tax expense | $ | 337 | $ | 372 | $ | 381 | |||||||||||
Deferred taxes are the result of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities were comprised of the following ($ in millions):
| January 31, 2026 | February 1, 2025 | ||||||||||
| Deferred revenue | $ | 119 | $ | 125 | |||||||
| Compensation and benefits | 70 | 75 | |||||||||
| Stock-based compensation | 30 | 29 | |||||||||
| Other accrued expenses | 35 | 46 | |||||||||
| Operating lease liabilities | 750 | 758 | |||||||||
| Loss and credit carryforwards | 140 | 163 | |||||||||
| Property and equipment | 36 | 57 | |||||||||
| Other | 50 | 48 | |||||||||
| Total deferred tax assets | 1,230 | 1,301 | |||||||||
| Valuation allowance | (143) | (172) | |||||||||
| Total deferred tax assets after valuation allowance | 1,087 | 1,129 | |||||||||
| Inventory | (96) | (92) | |||||||||
| Operating lease assets | (720) | (734) | |||||||||
| Goodwill and intangible assets | (86) | (61) | |||||||||
| Other | (21) | (19) | |||||||||
| Total deferred tax liabilities | (923) | (906) | |||||||||
| Net deferred tax assets | $ | 164 | $ | 223 | |||||||
Net deferred tax assets were included in Other assets on our Consolidated Balance Sheets as of January 31, 2026, and February 1, 2025.
As of January 31, 2026, we had deferred tax assets for net operating loss carryforwards from international operations of $93 million, of which $31 million will expire in various years through 2043 and the remaining amounts have no expiration; U.S. federal foreign tax credit carryforwards of $29 million, which will expire between 2027 and 2036; state credit carryforwards of $1 million, which will expire between 2027 and 2045; state net operating loss carryforwards of $8 million, which will expire between 2027 and 2046; international credit carryforwards of $1 million, which have no expiration; and international capital loss carryforwards of $8 million, which have no expiration.
As of January 31, 2026, a valuation allowance of $143 million had been established, of which $29 million is against U.S. federal foreign tax credit carryforwards; $13 million is against international, federal and state capital loss carryforwards; $99 million is against international and state net operating loss carryforwards and $2 million is against international and state credit carryforwards. The decrease in valuation allowance in fiscal 2026 was primarily due to disposals relating to certain international and state net operating loss carryforwards and certain other foreign deferred tax assets.
Reconciliations of changes in unrecognized tax benefits were as follows ($ in millions):
| 2026 | 2025 | 2024 | |||||||||||||||
| Balances at beginning of period | $ | 145 | $ | 140 | $ | 163 | |||||||||||
| Gross increases related to prior period tax positions | 2 | 13 | 10 | ||||||||||||||
Gross decreases related to prior period tax positions | (6) | (10) | (11) | ||||||||||||||
| Gross increases related to current period tax positions | 17 | 20 | 20 | ||||||||||||||
| Settlements with taxing authorities | (5) | 1 | (3) | ||||||||||||||
| Lapse of statute of limitations | (18) | (19) | (39) | ||||||||||||||
| Balances at end of period | $ | 135 | $ | 145 | $ | 140 | |||||||||||
Unrecognized tax benefits of $105 million, $116 million and $121 million as of January 31, 2026, February 1, 2025, and February 3, 2024, respectively, would favorably impact our effective income tax rate if recognized.
We recognize interest and penalties (not included in the unrecognized tax benefits above), as well as interest received from favorable tax settlements, as components of income tax expense. Interest expense of $6 million, $1 million and $3 million was recognized in fiscal 2026, fiscal 2025 and fiscal 2024, respectively. As of January 31, 2026, February 1, 2025, and February 3, 2024, we had accrued interest of $50 million, $45 million and $43 million, respectively.
We file a consolidated U.S. federal income tax return, as well as income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal or state and local income tax examinations by taxing authorities for years before fiscal 2020. For certain foreign jurisdictions, however, we remain open for examination of fiscal years back to 2011.
Changes in state, federal and foreign tax laws, as well as the timing and outcome of tax examinations, may impact our tax contingencies. The timing and resolution of these matters is uncertain, and the amounts ultimately paid may differ from our recorded accruals, resulting in a change to our gross unrecognized tax benefits in the period in which the change occurs.
Income taxes paid were as follows ($ in millions):
| January 31, 2026 | |||||
| Federal | $ | 197 | |||
| State and local | 63 | ||||
| Foreign: | |||||
| Canada | 19 | ||||
| Other | 5 | ||||
Total(1) | $ | 284 | |||
(1)Includes payments for purchased tax credits of $150 million.
Recently Enacted Tax Legislation
On July 4, 2025, the One Big Beautiful Bill Act ("OB3") was signed into law, amending and extending key provisions of the 2017 Tax Cuts and Jobs Act, including, but not limited to, domestic research expensing, 100% bonus depreciation on tangible property and modifications to the international tax framework. The provisions reduced our fiscal 2026 cash tax liability but did not have a material impact on our income tax expense.
On February 18, 2026, the U.S. Treasury and the Internal Revenue Service issued Notice 2026-7, Additional Interim Guidance Regarding the Application of the Corporate Alternative Minimum Tax. We are currently evaluating the financial impact, including assessing how the adjustments allowed under this notice interact with the tax law changes introduced by OB3.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Mar 18, 2026 | Showing above |
| 2025 | Mar 19, 2025 | |
| 2024 | Mar 15, 2024 | |
| 2023 | Mar 17, 2023 | |
| 2022 | Mar 18, 2022 | |
| 2021 | Mar 19, 2021 | |
| 2020 | Mar 23, 2020 | |
| 2019 | Mar 28, 2019 | |
| 2018 | Apr 2, 2018 | |
| 2017 | Mar 24, 2017 | |
| 2016 | Mar 23, 2016 | |
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.