Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 29, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of the provision for income taxes are as follows:
Fiscal Year Ended
in thousands
December 29,
2022		 December 30,
2021		 December 31,
2020
Current expense (benefit):
Federal
 $ 73,463  $ 37,869  $ (1,781)
State
 16,489  9,927  4,391 
Total current expense 89,952  47,796  2,610 
Deferred expense (benefit):
Federal
 (78) 4,853  11,684 
State
 (2,447) (1,811) (2,070)
Total deferred (benefit) expense (2,525) 3,042  9,614 
Provision for income taxes $ 87,427  $ 50,838  $ 12,224 
The following is a summary of the differences between the total provision for income taxes as shown on the financial statements and the provision for income taxes that would result from applying the federal statutory tax rate of 21% for the fiscal years ended December 29, 2022, December 30, 2021, and December 31, 2020 to income before income taxes:
Fiscal Year Ended
in thousands
December 29,
2022		 December 30,
2021		 December 31,
2020
Computed “expected” provision at statutory rate $ 80,984  $ 70,154  $ 43,513 
State income taxes, net of federal income tax benefit (1)
11,744  6,186  1,493 
Permanent differences:
Excess tax benefit related to stock-based compensation awards (3,762) (25,710) (27,003)
Other 874  908  517 
Total permanent differences (2,888) (24,802) (26,486)
Provision to return 183  (34) (150)
Federal tax credits (1,535) (1,471) (920)
CARES Act benefit —  —  (7,676)
Uncertain tax positions (848) 308  2,724 
Other, net (213) 497  (274)
Provision for income taxes $ 87,427  $ 50,838  $ 12,224 
(1)     Includes state excess tax benefits related to stock-based compensation awards for fiscal years 2022, 2021, and 2020 of $0.8 million, $4.6 million, and $5.3 million, respectively.
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and (liabilities) are presented below:
Fiscal Year Ended
in thousands December 29,
2022		 December 30,
2021
Deferred tax assets:
Lease liabilities $ 339,972  $ 308,198 
Accruals not currently deductible for tax purposes 16,014  11,622 
Stock-based compensation 11,320  8,754 
Inventories 10,337  10,711 
Other intangibles 4,187  335 
Gift card liability 3,206  1,254 
Other (1)
2,608  5,514 
Total deferred tax assets 387,644  346,388 
Deferred tax liabilities:
Right-of-use assets (302,008) (274,151)
Fixed assets (85,621) (70,289)
Intangible assets (27,430) (27,198)
Other (2,840) (5,876)
Total deferred tax liabilities (417,899) (377,514)
Net deferred tax liabilities $ (30,255) $ (31,126)
(1)    To conform to the current period presentation, the litigation accrual for December 30, 2021 is presented within other deferred tax assets.
The Company utilized $1.3 million and $0.2 million of tax-effected state net operating losses in fiscal 2022 and fiscal 2021, respectively; as of December 29, 2022, approximately $0.7 million of tax-effected state net operating losses were available to reduce future income taxes. The state net operating losses expire in various amounts beginning in fiscal 2032.
In assessing the realization of deferred tax assets, including net operating losses, management considered whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers taxable income in prior carryback periods, future reversals of existing taxable temporary differences, tax planning strategies, and future taxable income exclusive of reversing temporary differences and carryforwards in making this assessment, and accordingly, has concluded that no valuation allowance is necessary as of December 29, 2022 or December 30, 2021.
The Company files income tax returns with the U.S. Federal government and various state jurisdictions. Prior tax years beginning in year 2018 remain open to examination by the Internal Revenue Service (“IRS”). The Company closed a federal audit with the IRS for the 2015 to 2017 tax years. Foreign, state, and local income tax returns are generally subject to examination for a period of three to five years after filing of the respective returns.
Following is a reconciliation of the beginning and ending balance of unrecognized tax benefits for periods presented:
Fiscal Year Ended
in thousands December 29,
2022		 December 30,
2021		 December 31,
2020
Unrecognized tax benefits balance at beginning of fiscal year $ 1,073  $ 6,107  $ 402 
Additions based on tax positions related to the current year —  390  281 
Additions for tax positions of prior years —  —  5,424 
Reductions due to settlements —  (5,424) — 
Reductions for tax positions of prior years (1,073) —  — 
Unrecognized tax benefits balance at end of fiscal year $ —  $ 1,073  $ 6,107 
As of December 29, 2022 and December 30, 2021, there were no unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate. The Company's policy is to classify interest and penalties related to unrecognized tax benefits in income tax expense. The Company recognized $0.6 million of interest expense related to unrecognized tax benefits during fiscal 2020 and no such interest expense during fiscal years 2022 or 2021.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
The CARES Act includes, among other things, income tax provisions allowing for the temporary five-year carryback of net operating losses generated in 2018, 2019, and 2020, temporary modifications to the limitations placed on interest deductions, and technical corrections of tax depreciation methods for qualified improvement property (“QIP”), which changes 39-year property to 15-year property eligible for 100% tax bonus depreciation.
As a result of the faster tax depreciation methods allowed under the CARES Act for QIP and the retroactive application of those methods for QIP placed in service during fiscal 2018 and 2019, the Company incurred a fiscal 2019 net operating loss for federal income tax purposes that was carried back to prior years during which the federal tax rate was 35%, resulting in a $7.7 million income tax benefit during the second quarter of fiscal 2020. The Company also received $28.4 million of cash refunds in fiscal 2020 related to the accelerated QIP depreciation and the carry back of the fiscal 2019 net operating loss.
Inflation Reduction Act
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. The enactment of this legislation did not have a material impact on the Company’s consolidated financial statements.