Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.19.3.a.u2
Income Taxes
 12 Months Ended
Dec. 29, 2019
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
Income (loss) before income taxes includes the following components for the fiscal years ended December 29, 2019, December 30, 2018, and December 31, 2017 (in thousands):
 
 
2019
 
2018
 
2017
U.S.
 
$
(14,549
)
 
$
(16,045
)
 
$
32,208

Foreign
 
(7,688
)
 
(5,365
)
 
(3,188
)
 
 
$
(22,237
)
 
$
(21,410
)
 
$
29,020


The benefit for income taxes for the fiscal years ended December 29, 2019, December 30, 2018, and December 31, 2017 consist of the following (in thousands):
 
 
2019
 
2018
 
2017
Current:
 
 
 
 
 
 
Federal
 
$
(3,054
)
 
$
2,043

 
$
2,304

State
 
(1,687
)
 
1,579

 
3,175

Foreign
 
—

 
—

 
—

Total current income tax (benefit) expense
 
$
(4,741
)
 
$
3,622

 
$
5,479

Deferred:
 
 
 
 
 
 
Federal
 
$
(10,994
)
 
$
(16,688
)
 
$
(6,045
)
State
 
1,354

 
(2,068
)
 
(680
)
Foreign
 
47

 
143

 
247

Total deferred income tax benefit
 
(9,593
)
 
(18,613
)
 
(6,478
)
Income tax benefit
 
$
(14,334
)
 
$
(14,991
)
 
$
(999
)

The Company had net operating loss carryforwards for tax purposes of $4.7 million as of December 29, 2019. We expect to utilize all net operating loss carryforwards for federal tax purposes, but state tax carryforwards may begin to expire between 2024 and 2039.
The reconciliation between the income tax provision and the amount of income tax computed by applying the U.S. federal statutory rate to income (loss) before the provision for income taxes as shown in the accompanying consolidated statements of operations and comprehensive (loss) income, for fiscal years ended December 29, 2019, December 30, 2018, and December 31, 2017 is as follows:
 
 
2019
 
2018
 
2017
Tax provision at U.S. federal statutory rate
 
21.0
 %
 
21.0
 %
 
35.0
 %
State income taxes
 
2.2

 
2.9

 
5.0

FICA tip tax credits
 
46.0

 
49.9

 
(32.4
)
Foreign taxes versus U.S statutory rate
 
0.8

 
0.9

 
0.7

Valuation allowance on deferred income tax assets
 
(9.1
)
 
(7.5
)
 
4.5

Deferred tax remeasurement due to the Tax Act
 
—

 
—

 
(9.7
)
Other tax credits
 
6.1

 
7.1

 
(6.5
)
Meals and entertainment
 
(0.7
)
 
(0.8
)
 
0.9

Excess stock options
 
(2.9
)
 
(0.6
)
 
(1.0
)
Employee travel
 
(0.1
)
 
(2.1
)
 
—

Other
 
1.2

 
(0.8
)
 
—

Effective tax rate
 
64.5
 %
 
70.0
 %
 
(3.5
)%

The Company had a tax benefit in all three years presented above, but due to the mathematical computation of tax benefit to book loss the effective tax rate in 2019 and 2018 are represented as a positive percentage. During 2017, the Company had a tax benefit with book income, which presents the effective tax rate as a negative percentage. The decrease in the Company’s effective tax benefit in 2019 is primarily attributable to a decrease in tax credits, and an increase in the valuation allowance for Canada. The increase in the Company’s effective tax benefit in 2018 is primarily attributable to the decrease in earnings before income tax, as well as the decrease in the federal statutory rate from 35% to 21% beginning in 2018.
The Company’s federal and state deferred taxes at December 29, 2019 and December 30, 2018 are as follows (in thousands):
 
 
2019
 
2018
Deferred tax assets and (liabilities), net:
 
 
 
 
Leasing transactions
 
$
18,913

 
$
14,603

Stock-based compensation
 
4,920

 
5,434

General business and other tax credits
 
40,409

 
25,872

Accrued compensation and related costs
 
5,970

 
5,938

Advanced payments
 
3,597

 
3,783

Other non-current deferred tax assets
 
7,584

 
5,412

Other non-current deferred tax liabilities
 
(1,680
)
 
(2,605
)
Goodwill and other amortization, net
 
(12,138
)
 
(11,003
)
Property and equipment
 
(757
)
 
3,698

Prepaid expenses
 
(3,387
)
 
(3,600
)
Supplies inventory
 
(4,611
)
 
(4,514
)
Subtotal
 
58,820

 
43,018

Valuation allowance
 
(7,293
)
 
(5,177
)
Net deferred tax asset
 
51,527

 
37,841

Non-current deferred tax asset
 
52,438

 
38,688

Non-current deferred tax liability
 
(911
)
 
(847
)
Total
 
$
51,527

 
$
37,841


As of December 29, 2019, the Company had a deferred tax asset of $39 million related to federal tax credits, which expire at various dates between 2037 and 2039. We currently expect to realize the benefit of this deferred tax asset over the next 5 years based on current projections of future taxable income. Based on the Company’s evaluation of its other deferred tax assets, a valuation allowance of approximately $7.3 million has been recorded against the deferred tax asset for state income tax credits and the deferred taxes of our foreign subsidiary, including the net operating loss carry forward, in order to measure only the portion of the deferred tax assets that more likely than not will be realized.
The following table summarizes the Company’s unrecognized tax benefits at December 29, 2019 and December 30, 2018 (in thousands):
 
 
2019
 
2018
Beginning of year
 
$
304

 
$
287

Increase due to current year tax positions
 
52

 
82

Due to decrease to a position taken in a prior year
 
(170
)
 
(7
)
Settlements
 
(16
)
 
(21
)
Reductions related to lapses
 
(66
)
 
(37
)
End of year
 
$
104

 
$
304


The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $0.1 million. The Company does not anticipate significant changes in the aggregate amount of unrecognized tax benefits within the next 12 months, other than nominal tax settlements.