|12 Months Ended|
Dec. 27, 2018
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 year ended December 27, 2018 (35% for years ended December 28, 2017 and December 29, 2016) to income before income taxes (in thousands).
The permanent differences of $17,478 thousand and $20,762 thousand in 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 2018 and 2017 state benefits related to the recognition of excess tax benefits of $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. As of December 28, 2017, we had not yet completed our accounting for the enactment-date income tax effects of the Act under ASC 740 for the remeasurement of deferred tax assets and liabilities and tax on global intangible low-tax income.
In 2017 and the first nine months of 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 Act also subjects a U.S. 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. We have elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred. However, we did not incur tax for the period ended December 27, 2018.
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 $776 thousand of state net operating losses in fiscal 2018, resulting in a total of $2.2 million state net operating losses 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 27, 2018 or December 28, 2017
The Company files income tax returns with the U.S. Federal government and various state jurisdictions. Prior tax years beginning in year 2015 remain open to examination by the Internal Revenue Service. As of December 27, 2018, December 28, 2017, and December 29, 2016 the Company had unrecognized tax benefits of $0, $0, and $0, respectively. These unrecognized tax benefits as of December 27, 2018, December 28, 2017, and December 29, 2016 would have no impact on the effective tax rate, if recognized. 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