|12 Months Ended|
Dec. 26, 2019
6. 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 21% for the years ended December 26, 2019 and December 27, 2018 (35% for the year ended December 28, 2017) to income before income taxes (in thousands).
The permanent differences of $29,441 thousand, $17,478 thousand, and $20,762 thousand in fiscal 2019, fiscal 2018, and fiscal 2017, respectively, are the federal benefits due to the recognition of excess tax deductions for stock options exercised. In the table above, the 2019, 2018, and 2017 state benefits related to the recognition of excess tax benefits of $5.6 million, $3.3 million, and $1.0 million, respectively, are included in state income taxes, net of federal income tax benefit.
The Tax Cuts and Jobs Act (the “Act “), which was enacted on December 22, 2017, reduced the U.S. federal corporate income tax rate from 35% to 21% and created new taxes that may apply on certain foreign sourced earnings. In fiscal 2017 and the first nine months of fiscal 2018, we recorded provisional amounts for certain enactment-date effects of the Act by applying the guidance in Staff Accounting Bulletin No. 118 (“SAB 118”). As of December 28, 2017, 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%, and recorded a provisional amount of $17.9 million. Upon further analysis of certain aspects of the Act and refinement of our calculations prior to the end of the measurement period and during the twelve months ended December 27, 2018, we completed our accounting for all the enactment-date income tax effects of the Act and adjusted our provisional amount by an additional $600 thousand, which was included as a component of income tax expense from continuous operations. The changes to 2017 enactment-date provisional amounts decreased the effective tax rate for the year ended December 27, 2018 by 0.47%.
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 $719 thousand and $776 thousand of tax-effected state net operating losses in fiscal 2019 and fiscal 2018, respectively; as of December 26, 2019, approximately $2.8 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 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 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 26, 2019 or December 27, 2018.
The Company files income tax returns with the U.S. Federal government and various state jurisdictions. Prior tax years beginning in year 2016 remain open to examination by the Internal Revenue Service (“IRS”). We are currently under federal audit by the IRS for the 2017 tax year. Unrecognized tax benefits were $0.4 million as of December 26, 2019, and there were unrecognized tax benefits as of December 27, 2018 and December 28, 2017 that if recognized, would affect the effective tax rate in future periods. The Company's policy is to classify interest and penalties related to unrecognized tax benefits in income tax expense.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef