5. Income Taxes

The components of the provision for income taxes are as follows (in thousands):

 

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 35% to income before income taxes (in thousands).

 

The permanent difference of $20,762 thousand in fiscal 2017 is the federal benefit due to the recognition of excess tax deductions for stock options exercised. The state benefit related to the recognition of excess tax benefit of $1.0 million is included in state income taxes, net of federal income tax benefit in the table above. The permanent difference of $7,877 thousand in fiscal 2016 is the federal benefit related to a dividend equivalent payment to certain option holders.

 

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. As it relates to the Company, the Act reduces the US federal corporate tax rate from 35% to 21%, and creates new taxes that may apply on certain foreign sourced earnings. At December 28, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances. In other cases, we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which we were able to determine a reasonable estimate, we recognized a provisional amount of $17.9 million, which is included as a component of income tax expense from continuing operations. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we continue to analyze the Act.

Provisional amounts

We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of our deferred tax balance was $17.9 million.

 

The Act also subjects a US shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. Given the complexity of the GILTI provisions, we are still evaluating the possible effects of the GILTI provisions and have not yet determined our accounting policy. At  December 28, 2017, because we are still evaluating the GILTI provisions and our analysis of future taxable income that may be subject to GILTI, we are unable to make a reasonable estimate and have not reflected any adjustments related to GILTI in our financial statements.

 

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and (liabilities) are presented below (in thousands):

 

The Company generated $1,066 thousand of state net operating losses available to reduce future income taxes. The state net operating losses expire in various amounts from 2032 to 2037.

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 of 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 28, 2017 and December 29, 2016

The Company files income tax returns with the U.S. Federal government and various state jurisdictions. Prior tax years beginning in year 2013 remain open to examination by the Internal Revenue Service. The Internal Revenue Service has completed audits of the Company's federal income tax returns for the years through 2011. As of December 28, 2017,  December 29, 2016, and December 31, 2015 the Company had unrecognized tax benefits of $0,  $0, and $0 thousand, respectively. The amounts of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate were $0,  $0, and $0 thousand as of December 28, 2017,  December 29, 2016, and December 31, 2015, respectively. The Company's policy is to classify interest and penalties related to unrecognized tax benefits in income tax expense.