Chewy, Inc.CHWY
Chewy, Inc. Income Taxes Disclosure
Income Taxes
Chewy is subject to taxation in the U.S. and various state, local, and foreign jurisdictions. The following table provides additional information about the Company’s income tax provision (benefit) (in millions):
| Fiscal Year | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 1.3 | $ | 4.1 | $ | 3.3 | |||||||||||
| State | 10.6 | 12.4 | 5.4 | ||||||||||||||
| Total current provision | $ | 11.9 | $ | 16.5 | $ | 8.7 | |||||||||||
| Deferred | |||||||||||||||||
| Federal | $ | 31.0 | $ | (210.0) | $ | — | |||||||||||
| State | (2.4) | (47.5) | — | ||||||||||||||
| Total deferred provision (benefit) | 28.6 | (257.5) | — | ||||||||||||||
| Income tax provision (benefit) | $ | 40.5 | $ | (241.0) | $ | 8.7 | |||||||||||
The Company’s consolidated income (loss) from continuing operations before income taxes is primarily attributable to its U.S. operations. A reconciliation of the U.S. federal statutory rate to the Company’s effective income tax rate for the fiscal year ended February 1, 2026, pursuant to the disclosure requirements of ASU 2023-09 is as follows (in millions, except percentages):
| Fiscal Year | |||||||||||
| 2025 | |||||||||||
| U.S. federal tax at statutory rate | $ | 55.3 | 21.0 | % | |||||||
State and local income tax, net of federal effect (1) | 6.5 | 2.5 | % | ||||||||
| Foreign tax effects | 7.0 | 2.7 | % | ||||||||
| Tax credits | |||||||||||
| Research and development tax credit | (27.0) | (10.3) | % | ||||||||
| Other tax credits | (1.5) | (0.6) | % | ||||||||
| Nontaxable or nondeductible items | |||||||||||
| Share-based compensation | (15.9) | (6.0) | % | ||||||||
| Executive compensation | 7.3 | 2.8 | % | ||||||||
| Others | 2.3 | 0.8 | % | ||||||||
| Changes in unrecognized tax benefits | 6.5 | 2.5 | % | ||||||||
| Effective tax rate | $ | 40.5 | 15.4 | % | |||||||
(1) State and local taxes in California and Florida made up greater than 50% of the tax effect in this category | |||||||||||
A reconciliation of the U.S. federal statutory rate to the Company’s effective income tax rate for Fiscal Years 2024 and 2023, prior to the adoption of ASU 2023-09, is as follows:
| Fiscal Year | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| State income taxes, net of federal tax benefits | 8.3 | % | (4.1) | % | ||||||||||
| Foreign earnings, net of taxes | 1.8 | % | 2.8 | % | ||||||||||
| Tax credits | (23.5) | % | (43.7) | % | ||||||||||
| Share-based compensation and other nondeductible expenses | 5.2 | % | 16.8 | % | ||||||||||
| Others | (5.3) | % | 0.9 | % | ||||||||||
| Provision to return | (4.5) | % | — | % | ||||||||||
| Change in valuation allowance | (176.3) | % | 24.2 | % | ||||||||||
| Changes in unrecognized tax benefits | 14.4 | % | — | % | ||||||||||
| Effective rate | (158.9) | % | 17.9 | % | ||||||||||
The temporary differences which comprise the Company’s deferred taxes are as follows for the periods presented (in millions):
| As of | |||||||||||
| February 1, 2026 | February 2, 2025 | ||||||||||
| Deferred tax assets: | |||||||||||
| Operating lease liabilities | $ | 144.3 | $ | 139.2 | |||||||
| Inventories | 14.8 | 13.2 | |||||||||
| Share-based compensation | 25.2 | 12.5 | |||||||||
| Accrued expenses and reserves | 18.8 | 15.5 | |||||||||
| Net operating loss carryforwards | 54.6 | 73.7 | |||||||||
| Tax credit carryforwards | 86.8 | 60.5 | |||||||||
| Capitalized research expenditures | 128.2 | 164.0 | |||||||||
| Others | 14.2 | 7.6 | |||||||||
| Total deferred tax assets | 486.9 | 486.2 | |||||||||
| Less: valuation allowance | 27.4 | 21.8 | |||||||||
| Deferred tax assets, net of valuation allowance | 459.5 | 464.4 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right-of-use assets | 121.2 | 116.9 | |||||||||
| Depreciation | 94.9 | 80.5 | |||||||||
| Prepaids and Others | 11.2 | 9.5 | |||||||||
| Total deferred tax liabilities | 227.3 | 206.9 | |||||||||
| Net deferred tax assets | $ | 232.2 | $ | 257.5 | |||||||
Valuation Allowance
The realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considers the scheduled reversal of deferred tax liabilities (including the effect of available carryback and carryforward periods) in making this assessment. Prior to Fiscal Year 2024, and due to its history of losses, the Company determined it was more likely than not that its deferred tax assets would not be realized and accordingly established a full valuation allowance on its net deferred tax assets. During Fiscal Year 2024, based on all available evidence, the Company determined that it was appropriate to release the valuation allowance on its U.S. federal and other state deferred tax assets of $275.7 million. As of February 1, 2026, the Company continues to maintain a full valuation allowance against its foreign net deferred tax assets and certain U.S. state deferred tax assets.
The following summarizes the activity related to valuation allowances on deferred tax assets (in millions):
| Fiscal Year | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Valuation allowance, as of beginning of period | $ | 21.8 | $ | 281.1 | $ | 230.7 | |||||||||||
| Valuation allowances established | 8.0 | 16.4 | 50.4 | ||||||||||||||
| Changes to existing valuation allowances | (2.4) | (275.7) | — | ||||||||||||||
| Valuation allowance, as of end of period | $ | 27.4 | $ | 21.8 | $ | 281.1 | |||||||||||
Net Operating Loss and Tax Credit Carryforwards
As of February 1, 2026, the Company had federal, state, and foreign NOL carryforwards of $82.8 million, $282.5 million and $95.1 million, respectively. Federal NOL carryforwards have no expiration and can only be used to offset 80% of the Company’s future taxable income. State NOL carryforwards include $131.7 million with definitive expiration dates and $150.8 million with no expiration. State NOLs are presented as an apportioned amount. The foreign NOL carryforwards have a 20-year expiration and can be used to offset 100% of the Company’s future taxable income.
The Company participates in various federal and state credit programs which provide credits against current and future tax liabilities. Credits not used in the current year are carried forward to future years.
The table below presents deferred tax assets with respect to NOL and tax credit carryforwards, before any valuation allowance, recorded on the consolidated balance sheets (in millions):
Deferred Tax Assets | Expiration Date | As of February 1, 2026 | ||||||||||||
| NOL carryforwards | ||||||||||||||
| Foreign | 2043 - 2044 | $ | 25.2 | |||||||||||
| State | 2026 - 2043 | 5.7 | ||||||||||||
| Federal and state | Indefinite | 23.7 | ||||||||||||
| Total NOL carryforwards | $ | 54.6 | ||||||||||||
Tax credit carryforwards | ||||||||||||||
| Federal and state | 2026 - 2048 | $ | 86.8 | |||||||||||
Total tax credit carryforwards | $ | 86.8 | ||||||||||||
Unrecognized Tax Benefits
As of February 1, 2026, the Company had unrecognized tax benefits of $52.9 million, inclusive of $4.5 million in interest. If recognized, $48.4 million would benefit the Company’s effective tax rate. The unrecognized tax benefits include $18.9 million, inclusive of $4.0 million in interest, that the Company became the obligor for in connection with the Transactions in Fiscal Year 2023. Chewy is fully indemnified by affiliates of BC Partners for these unrecognized tax benefits and related interest. For more information, see Note 14 - Certain Relationships and Related Party Transactions.
The Company files U.S. federal, state and foreign tax returns. The Company is currently under audit by the IRS for Fiscal Year 2022. The Company is also generally subject to examination by various state and local jurisdictions for years 2021 through 2024. While the Company believes that its tax positions are more likely than not to be sustained, it is possible that additional tax obligations could arise as these matters progress. The Company has recorded what it considers to be adequate unrecognized tax benefits for any adjustments that may ultimately results from these examinations.
The following table provides a summary of gross unrecognized tax benefits (in millions):
| Fiscal Year | |||||||||||
| 2025 | 2024 | ||||||||||
| Beginning balance | $ | 40.1 | $ | 18.3 | |||||||
Increases related to tax positions taken during the current year | 7.5 | 8.2 | |||||||||
Increases related to tax positions taken during the prior year | 4.2 | 13.6 | |||||||||
| Decreases related to expiration of statute of limitations | (3.4) | — | |||||||||
| Ending balance | $ | 48.4 | $ | 40.1 | |||||||
Income Tax Payments and Liabilities
In the aggregate, the Company paid $23.3 million, net of refunds received, for federal, state and foreign income taxes during Fiscal Year 2025. This includes $1.2 million of US federal income taxes, $2.0 million state income taxes paid to California and $1.2 million state income taxes paid to Pennsylvania. The Company also paid $11.7 million in income taxes to Puerto Rico in connection with the Transaction.
In the aggregate, the Company paid $118.2 million and $1.8 billion, net of refunds received, for federal, state, and foreign income taxes during Fiscal Years 2024 and 2023, respectively. The Company paid $25.0 million and $5.0 million, net of refunds received, for federal, state, and foreign income taxes other than pertaining to the Transaction during Fiscal Years 2024 and 2023, respectively
Chewy assumed $1.9 billion of federal and state income taxes in connection with the Transactions, which were fully indemnified by affiliates of BC Partners. The Company paid federal and state income taxes, net of refunds, of $93.2 million and $1.8 billion in connection with the Transactions during Fiscal Years 2024 and 2023 respectively. The Company paid $9.2 million of federal and state income taxes, net of refunds, in connection with the Transaction during Fiscal Year 2025, including $11.7 million in income taxes paid to Puerto Rico. For more information, see Note 1 - Description of Business and Note 14 - Certain Relationships and Related Party Transactions.
Changes in Tax Law
Beginning in 2022, the 2017 Tax Cuts and Jobs Act amended Section 174 to eliminate current-year deductibility of research and experimentation (“R&E”), and software development costs, and instead requires taxpayers to charge their R&E expenditures to a capital account amortized over five years (15 years for expenditures attributable to R&E activity performed outside the United States). The One Big Beautiful Bill Act (“OBBBA”) was enacted in July 2025 and makes permanent key elements of the 2017 Tax Cuts and Job Act, including 100% bonus depreciation, immediate expensing of domestic R&E expenditure, and the business interest expense limitation. The changes introduced by OBBBA did not have a material impact on the Company’s effective tax rate for Fiscal Year 2025. Enhanced deductions under OBBBA lowered the Company’s cash tax payments during Fiscal Year 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Mar 25, 2026 | Showing above |
| 2025 | Mar 26, 2025 | |
| 2024 | Mar 20, 2024 | |
| 2023 | Mar 22, 2023 | |
| 2022 | Mar 29, 2022 | |
| 2021 | Mar 30, 2021 | |
| 2020 | Apr 2, 2020 | |
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.