v3.26.1
Income Taxes
 12 Months Ended
Jul. 31, 2026
Income Tax Disclosure [Abstract]  
Income Taxes
10. Income Taxes
The provision for income taxes consisted of the following for the periods indicated:
Twelve Months Ended July 31,
(In millions)202620252024
Current:
Federal$(59)$1,219 $984 
State189 237 202 
Foreign49 25 36 
 Total current179 1,481 1,222 
Deferred:
Federal1,205 (453)(523)
State72 (70)(97)
Foreign(5)7 (15)
Total deferred1,272 (516)(635)
Total provision for income taxes$1,451 $965 $587 
We recognized tax shortfalls on share-based compensation of $43 million in the provision for income taxes for the twelve months ended July 31, 2026. We recognized excess tax benefits on share-based compensation of $143 million and $183 million in the provision for income taxes for the twelve months ended July 31, 2025 and 2024, respectively.
The sources of income before the provision for income taxes consisted of the following for the periods indicated:
Twelve Months Ended July 31,
(In millions)202620252024
United States$5,875 $4,700 $3,449 
Foreign142 134 101 
Total$6,017 $4,834 $3,550 
Differences between income taxes calculated using the federal statutory income tax rate and the provision for income taxes were as follows for the periods indicated:
Twelve Months Ended July 31,
(In millions)202620252024
AmountPercentAmountPercentAmountPercent
Income before income taxes$6,017 $4,834 $3,550 
Statutory federal income tax$1,264 21.0 %$1,015 21.0 %$746 21.0 %
State income taxes, net of federal benefit (1)
206 3.4 132 2.7 83 2.3 
Foreign tax effects:
Statutory tax rate differences between foreign and U.S.14 0.2 4 0.1 — — 
Tax credits
Federal research and experimentation credits(96)(1.6)(113)(2.3)(109)(3.1)
Nontaxable or nondeductible items
Share-based compensation56 1.0 47 1.0 43 1.2 
Shortfalls (excess tax benefits) related to share-based compensation36 0.6 (120)(2.5)(153)(4.3)
Changes in unrecognized tax benefits(36)(0.6)(11)(0.2)(33)(0.9)
Other adjustments(2)
7 0.1 11 0.2 10 0.3 
Provision for income taxes$1,451 24.1 %$965 20.0 %$587 16.5 %
(1) Fiscal 2026: State taxes effect in New York, Illinois, Pennsylvania, New Jersey, New York City, Massachusetts, Minnesota, Georgia, and Michigan made up the majority (greater than 50%) of the tax effect in this category.
Fiscal 2025: State taxes effect in New York, Illinois, New Jersey, Pennsylvania, New York City, Massachusetts, Texas, Minnesota, and Maryland made up the majority (greater than 50%) of the tax effect in this category.
Fiscal 2024: State taxes effect in New York, Illinois, New Jersey, Florida, New York City, Massachusetts, Minnesota, and Michigan made up the majority (greater than 50%) of the tax effect in this category.
(2) Fiscal 2026: Other adjustments include nontaxable or nondeductible items and other tax credits.
Fiscal 2025: Other adjustments include nontaxable or nondeductible items and the effect of cross border tax laws.
Fiscal 2024: Other adjustments include nontaxable or nondeductible items and other tax credits.
The state income tax line in the table above includes tax shortfalls related to share-based compensation of $7 million for the twelve months ended July 31, 2026. The state income tax line in the table above includes excess tax benefits related to share-based compensation of $23 million and $30 million for the twelve months ended July 31, 2025 and 2024, respectively.
Income taxes paid, net of refunds, were as follows (in millions):
Twelve Months Ended July 31,
202620252024
U.S. federal$(6)$1,105 $1,659 
U.S. state and local
California51 31 (4)
New York25 23 20 
Pennsylvania18 15 14 
Other162 191 161 
Foreign
India24 21 24 
Other7 22 7 
  Total cash paid for income taxes, net of refunds$281 $1,408 $1,881 
On July 4, 2025, the U.S. federal government enacted the One Big Beautiful Bill Act (OBBBA), which includes significant tax
changes, most notably the reinstatement of the immediate expensing of domestic research and development expenditures,
effective in fiscal 2026. The deductibility of these expenditures, including the election to deduct the prior year unamortized, capitalized research and development expenses, reduced the deferred tax assets and income taxes payable for fiscal 2026.
In the current global tax policy environment, the U.S. and other domestic and foreign governments continue to consider, and in some cases enact, changes in corporate tax laws. As changes occur, we account for finalized legislation in the period of enactment.
Material deferred tax assets and liabilities were as follows at the dates indicated:
July 31,
(In millions)20262025
Deferred tax assets:
Accruals and reserves not currently deductible$98 $72 
Capitalized research and development
673 1,895 
Operating lease liabilities176 173 
Accrued and deferred compensation154 116 
Loss and tax credit carryforwards243 277 
Share-based compensation106 113 
Other, net27 24 
Total gross deferred tax assets1,477 2,670 
Valuation allowance(257)(290)
Total deferred tax assets1,220 2,380 
Deferred tax liabilities:
Operating lease right-of-use assets139 140 
Intangibles1,012 950 
Property and equipment29 32 
Other, net107 56 
Total deferred tax liabilities1,287 1,178 
Net deferred tax assets (liabilities)$(67)$1,202 
The components of total net deferred tax assets, net of valuation allowances, as shown on our consolidated balance sheets were as follows at the dates indicated:
July 31,
(In millions)20262025
Long-term deferred income tax assets$172 $1,222 
Long-term deferred income tax liabilities(239)(20)
Net deferred tax assets (liabilities)$(67)$1,202 
We have provided a valuation allowance on California net deferred tax assets primarily related to state research and experimentation tax credit carryforwards. We have also provided a valuation allowance on other non-California state operating loss and foreign loss carryforwards. We have provided a valuation allowance on these deferred tax assets as we believe they are unlikely to be realized. We have a valuation allowance of $257 million and $290 million for the twelve months ended July 31, 2026 and July 31, 2025, respectively. The valuation allowance on our net deferred taxes decreased by $33 million for the twelve months ended July 31, 2026. The change in the valuation allowance was primarily related to a decrease in the allowance for California net deferred tax assets. The valuation allowance on our net deferred taxes increased by $63 million for the twelve months ended July 31, 2025. The change in the valuation allowance was primarily related to an increase in the allowance for California net deferred tax assets.
At July 31, 2026, we had federal net operating loss carryforwards of approximately $35 million that will start to expire in fiscal 2032. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.
At July 31, 2026, we had state net operating loss carryforwards of approximately $99 million for which we have recorded a deferred tax asset of $6 million and a valuation allowance of $6 million. The state net operating loss carryforwards will start to expire in fiscal 2028. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.
At July 31, 2026, we had foreign net operating loss carryforwards of approximately $18 million which carry forward indefinitely. We maintain a full valuation allowance with respect to the foreign net operating losses as there is not sufficient evidence of future sources of taxable income required to utilize such carryforwards.
At July 31, 2026, we had California research and experimentation credit carryforwards of approximately $415 million. The California research and experimentation credit will carry forward indefinitely. We maintain a full valuation allowance with respect to the California research and experimentation credit carryforwards as there is not sufficient evidence of future sources of taxable income required to utilize such carryforwards.
Unrecognized Tax Benefits
The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the periods indicated:
Twelve Months Ended July 31,
(In millions)202620252024
Gross unrecognized tax benefits, beginning balance$394 $327 $246 
Increases related to tax positions from prior fiscal years, including acquisitions17 11 36 
Decreases related to tax positions from prior fiscal years— (21)(12)
Increases related to tax positions taken during current fiscal year42 91 95 
Settlements with tax authorities(2)(2)(1)
Lapse of statute of limitations(38)(12)(37)
Gross unrecognized tax benefits, ending balance$413 $394 $327 
The total amount of our unrecognized tax benefits at July 31, 2026 was $413 million. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $275 million.
We file U.S. federal, U.S. state, and foreign tax returns. Our major tax jurisdiction is the U.S. federal jurisdiction. For U.S. federal tax returns, we are no longer subject to tax examinations for years prior to fiscal 2023 except for fiscal 2018 and fiscal 2016.
We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. Amounts accrued at July 31, 2026 and July 31, 2025 for the payment of interest and penalties were not material. The amounts of interest and penalties that we recognized during the twelve months ended July 31, 2026, 2025, and 2024, were also not material.
We offset a $61 million long-term liability for uncertain tax positions against our long-term income tax receivable at each of the
reporting periods ended July 31, 2026 and July 31, 2025. The long-term income tax receivable for both periods was primarily related to the government’s approval of a method of accounting change request for fiscal 2018.