NOTE 14: INCOME TAXES Nordstrom, Inc. Notes to Consolidated Financial Statements 60 The major components of deferred tax assets and liabilities are as follows: In 2014, we acquired Trunk Club in a tax-free merger transaction. Tax adjustments related to a reassessment of our deferred tax assets  related to acquisitions resulted in an increase in our effective tax rate in 2014. A reconciliation of the statutory federal income tax rate to the effective tax rate on earnings before income taxes is as follows: Income tax expense consists of the following: Dollar and share amounts in millions except per share, per option and per unit amounts Fiscal year 2014 2013 2012 Current income taxes: Federal $397 $379 $362 State and local 61 64 66 Total current income tax expense 458 443 428 Deferred income taxes: Federal 9 9 21 State and local 2 3 1 Foreign (4) — — Total deferred income tax expense 7 12 22 Total income tax expense $465 $455 $450 Fiscal year 2014 2013 2012 Statutory rate 35.0% 35.0% 35.0% State and local income taxes, net of federal income taxes 3.8% 3.6% 3.6% Non-deductible acquisition-related items 0.9% —% —% Other, net (0.5%) (0.3%) (0.6%) Effective tax rate 39.2% 38.3% 38.0% January 31, 2015 February 1, 2014 Compensation and benefits accruals $191 $182 Allowance for sales returns 62 56 Accrued expenses 51 48 Allowance for credit losses 29 32 Merchandise inventories 31 28 Gift cards 23 21 Gain on sale of interest rate swap 12 19 Nordstrom Notes 22 18 Federal benefit of state taxes 3 6 Other 4 16 Total deferred tax assets 428 426 Land, property and equipment basis and depreciation differences (116) (98) Debt exchange premium (22) (24) Total deferred tax liabilities (138) (122) Net deferred tax assets $290 $304