v3.24.2
INCOME TAXES
 12 Months Ended
May 26, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Total income tax expense (benefit) was allocated as follows:
Fiscal Year Ended
(in millions)May 26, 2024May 28, 2023May 29, 2022
Earnings from continuing operations$145.0 $137.0 $138.8 
Loss from discontinued operations(1.7)(0.8)(0.2)
Total consolidated income tax expense (benefit)$143.3 $136.2 $138.6 

The components of earnings from continuing operations before income taxes and the provision for income taxes thereon are as follows:
Fiscal Year Ended
(in millions)May 26, 2024May 28, 2023May 29, 2022
Earnings from continuing operations before income taxes:
U.S.$1,169.2 $1,117.3 $1,089.5 
Foreign6.3 3.2 4.0 
Earnings from continuing operations before income taxes$1,175.5 $1,120.5 $1,093.5 
Income taxes:
Current:
Federal$99.2 $165.9 $90.7 
State and local43.5 25.6 72.7 
Foreign3.0 1.6 1.4 
Total current$145.7 $193.1 $164.8 
Deferred (principally U.S.):
Federal$(0.7)$(69.2)$10.3 
State and local— 13.1 (36.3)
Total deferred$(0.7)$(56.1)$(26.0)
Total income tax expense$145.0 $137.0 $138.8 

The effective income tax rates for fiscal 2024 and 2023 for continuing operations were 12.3 percent and 12.2 percent, respectively. During fiscal 2024, we had income tax expense of $145.0 million on earnings before income tax of $1.18 billion compared to income tax expense of $137.0 million on earnings before income taxes of $1.12 billion in fiscal 2023. This change was primarily driven by the impact of state tax expense.
The Inflation Reduction Act (IRA) was enacted on August 16, 2022. The IRA includes provisions imposing a 1 percent excise tax on share repurchases that occur after December 31, 2022 and introduced a 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income. The impact of the IRA excise tax and the CAMT are immaterial to our fiscal 2024 consolidated financial statements.
The following table is a reconciliation of the U.S. statutory income tax rate to the effective income tax rate from continuing operations included in the accompanying consolidated statements of earnings:
Fiscal Year Ended
May 26, 2024May 28, 2023May 29, 2022
U.S. statutory rate21.0 %21.0 %21.0 %
State and local income taxes, net of federal tax benefits3.3 3.1 2.5 
Benefit of federal income tax credits(10.5)(10.4)(9.8)
Stock-based compensation tax benefit(1.1)(0.9)(0.9)
Other, net(0.4)(0.6)(0.1)
Effective income tax rate12.3 %12.2 %12.7 %

As of May 26, 2024, we had estimated current prepaid state and federal income taxes of $11.8 million and $109.9 million, respectively, which is included on our accompanying consolidated balance sheets as prepaid income taxes and estimated current state and federal income taxes payable of $2.5 million and $3.6 million, respectively, which is included on our accompanying consolidated balance sheets as accrued income taxes.
As of May 26, 2024, we had unrecognized tax benefits of $22.7 million, which represents the aggregate tax effect of the differences between tax return positions and benefits recognized in our consolidated financial statements, all of which would favorably affect the effective tax rate if resolved in our favor. Included in the balance of unrecognized tax benefits at May 26, 2024, is $6.1 million related to tax positions for which it is reasonably possible that the total amounts could change during the next 12 months based on the outcome of examinations. Of the $6.1 million, $3.9 million relates to items that would impact our effective income tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:
(in millions)
Balances at May 28, 2023$23.0 
Additions related to current-year tax positions5.3 
Additions related to prior-year tax positions0.2 
Net reductions due to settlements with taxing authorities(2.7)
Reductions to tax positions due to statute expiration(3.1)
Balances at May 26, 2024$22.7 
Interest included in income tax expense in our consolidated statements of earnings is as follows:
Fiscal Year Ended
(in millions)May 26, 2024May 28, 2023May 29, 2022
Interest recorded on unrecognized tax benefits$1.7 $2.2 $1.3 
Interest recorded on income tax receivables$(6.9)$(6.8)$(3.1)
Total (Benefit) Expense$(5.2)$(4.6)$(1.8)

At May 26, 2024, we had $3.2 million accrued for the payment of interest associated with unrecognized tax benefits.

For U.S. federal income tax purposes, we participate in the IRS’s Compliance Assurance Process (CAP), whereby our U.S. federal income tax returns are reviewed by the IRS both prior to and after their filing. Income tax returns are subject to audit by state and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws. The major jurisdictions in which the Company files income tax returns include the U.S. federal jurisdiction, Canada, and all states in the U.S. that have an income tax. With a few exceptions, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before fiscal 2023, and state and local, or non-U.S. income tax examinations by tax authorities for years before fiscal 2019.
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:
(in millions)May 26, 2024May 28, 2023
Accrued liabilities$136.4 $117.2 
Compensation and employee benefits127.8 122.8 
Lease liabilities1,332.4 1,248.5 
Net operating loss, credit and charitable contribution carryforwards71.8 77.5 
Other1.0 4.3 
Gross deferred tax assets$1,669.4 $1,570.3 
Valuation allowance(26.8)(21.1)
Deferred tax assets, net of valuation allowance$1,642.6 $1,549.2 
Trademarks and other acquisition related intangibles(274.6)(184.2)
Buildings and equipment(373.5)(337.7)
Capitalized software and other assets(30.4)(26.0)
Lease assets(1,183.8)(1,129.5)
Other(12.3)(14.0)
Gross deferred tax liabilities$(1,874.6)$(1,691.4)
Net deferred tax liabilities$(232.0)$(142.2)

We have deferred tax assets of $32.3 million reflecting the benefit of state loss carryforwards, before federal benefit and valuation allowance, which expire at various dates between fiscal 2025 and fiscal 2042. We have deferred tax assets of $7.9 million of federal and $47.1 million state tax credits, before federal benefit and valuation allowance, which expire at various dates between fiscal 2025 and fiscal 2044. We have deferred tax assets of $1.5 million of state charitable contributions carryforwards, before federal benefit and valuation allowance, which expire at various dates between fiscal 2025 and fiscal 2029.

We have taken current and potential future expirations into consideration when evaluating the need for valuation allowances against these deferred tax assets. A valuation allowance for deferred tax assets is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Realization is dependent upon the generation of future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which our deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowances at May 26, 2024.