Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.0.1
Income Taxes
 12 Months Ended
Dec. 30, 2021
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 30,
2021		 December 31,
2020		 December 26,
2019
Current expense (benefit):
Federal
 $ 37,869  $ (1,781) $ 7,975 
State
 9,927  4,391  2,358 
Total current expense 47,796  2,610  10,333 
Deferred expense (benefit):
Federal
 4,853  11,684  (6,522)
State
 (1,811) (2,070) (4,062)
Total deferred expense (benefit) 3,042  9,614  (10,584)
Provision (benefit) for income taxes $ 50,838  $ 12,224  $ (251)
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 30, 2021, December 31, 2020, and December 26, 2019 to income before income taxes:
Fiscal Year Ended
in thousands
December 30,
2021		 December 31,
2020		 December 26,
2019
Computed “expected” provision at statutory rate $ 70,154  $ 43,513  $ 31,580 
State income taxes, net of federal income tax benefit (1) 6,186  1,493  (1,364)
Permanent differences:
Excess tax benefit related to stock options exercised (25,710) (27,003) (29,441)
Other 908  517  543 
Total permanent differences (24,802) (26,486) (28,898)
Provision to return (34) (150) (282)
Federal tax credits (1,471) (920) (1,306)
CARES Act benefit —  (7,676) — 
Uncertain Tax Positions 308  2,724  — 
Other, net 497  (274) 19 
Provision (benefit) for income taxes $ 50,838  $ 12,224  $ (251)
(1)     Includes state excess tax benefits related to stock options exercised for fiscal years 2021, 2020, and 2019 of $4.6 million, $5.3 million, and $5.6 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:
in thousands Fiscal Year Ended December 30,
2021		 Fiscal Year Ended December 31,
2020
Deferred tax assets:
Lease liabilities $ 308,198  $ 259,273 
Accruals not currently deductible for tax purposes 11,622  8,293 
Inventories 10,711  6,941 
Stock-based compensation 8,754  5,979 
Gift card liability 1,254  557 
Other intangibles 335  268 
Litigation accrual 86  120 
Other 5,428  10,732 
Total deferred tax assets 346,388  292,163 
Deferred tax liabilities:
Right-of-use assets (274,151) (227,166)
Fixed assets (70,289) (62,374)
Intangible assets (27,198) (27,053)
Other (5,876) (3,560)
Total deferred tax liabilities (377,514) (320,153)
Net deferred tax liabilities $ (31,126) $ (27,990)
The Company utilized $0.2 million and generated less than $0.1 million of tax-effected state net operating losses in fiscal 2021 and fiscal 2020, respectively; as of December 30, 2021, approximately $2.3 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 30, 2021 or December 31, 2020.
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 30,
2021		 December 31,
2020		 December 26,
2019
Unrecognized tax benefits balance at beginning of fiscal year $ 6,107  $ 402  $ — 
Additions based on tax positions related to the current year 390  281  282 
Additions for tax positions of prior years —  5,424  120 
Reductions due to settlements (5,424) —  — 
Unrecognized tax benefits balance at end of fiscal year $ 1,073  $ 6,107  $ 402 
As of December 30, 2021, there were no unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate, while there were $1.9 million of such unrecognized tax benefits as of December 31, 2020. 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 2021 or 2019.
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. In addition, the CARES Act includes provisions such as the temporary deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit for 50% of wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. Subsequent to enactment of the CARES Act, additional legislation was enacted that affected the availability of employee retention credits, including the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, and The Infrastructure Investment and Jobs Act. Collectively, these laws provided availability of the CARES Act employee retention credit through September 30, 2021.
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.
During the fiscal years ended December 30, 2021 and December 31, 2020, the Company recognized employee retention credits totaling $1.0 million and $1.7 million, respectively. Within the Consolidated Statements of Operations and Comprehensive Income, employee retention credits during the periods presented were recognized as a reduction to selling and store operating expenses with the exception of $0.2 million of such credits that were recognized as an offset to general and administrative expenses during fiscal 2020.
As of December 30, 2021, the Company has deferred $6.0 million of employer social security taxes under the CARES Act that are required to be deposited by December 31, 2022 and are included in other liabilities within the Consolidated Balance Sheets.