Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 25, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Loss before income taxes includes the following components for the fiscal years ended December 25, 2022, December 26, 2021, and December 27, 2020 (in thousands):
2022 2021 2020
U.S. $ (76,893) $ (49,978) $ (262,728)
Foreign (160) (176) (20,824)
Loss before income taxes $ (77,053) $ (50,154) $ (283,552)
The benefit for income taxes for the fiscal years ended December 25, 2022, December 26, 2021, and December 27, 2020 consist of the following (in thousands):
2022 2021 2020
Current:
Federal $ 374  $ —  $ (60,340)
State 373  (152) 1,354 
Foreign —  —  — 
Total current income tax (benefit) $ 747  $ (152) $ (58,986)
Deferred:    
Federal $ —  $ —  $ 44,353 
State —  —  8,086 
Foreign —  —  (937)
Total deferred income tax expense (benefit) —  —  51,502 
Income tax benefit $ 747  $ (152) $ (7,484)
The reconciliation between the income tax benefit and the amount of income tax computed by applying the U.S. federal statutory rate to loss before income taxes as shown in the accompanying Consolidated Statements of Operations and Comprehensive Loss for fiscal years ended December 25, 2022, December 26, 2021, and December 27, 2020 is as follows:
2022 2021 2020
Tax provision at U.S. federal statutory rate 21.0  % 21.0  % 21.0  %
State income taxes 4.0  3.8  3.9 
Foreign taxes versus U.S statutory rate —  —  0.2 
Valuation allowance on deferred income tax assets (24.2) (25.2) (27.9)
Impact of CARES Act and related method changes —  —  5.5 
Excess stock options (1.1) 1.1  (0.1)
Other (0.7) (0.4) — 
Effective tax rate (1.0) % 0.3  % 2.6  %

The increase in tax expense for the year ended December 25, 2022, is primarily due to the 2022 impact of state taxes including minimum state income taxes and state franchise taxes as well as an adjustment to federal taxes. The decrease in the Company's effective tax benefit in 2021 is primarily due to the 2020 favorable rate impact of net operating loss carrybacks allowed as part of the CARES Act.
The Company's federal and state deferred taxes at December 25, 2022 and December 26, 2021 are as follows (in thousands):
2022 2021
Deferred tax assets:
Leasing transactions $ 115,832  $ 126,981 
General business and other tax credits 40,802  40,472 
Net operating loss carryover 48,341  36,069 
Accrued compensation and related costs 8,651  9,738 
Goodwill 7,851  8,296 
Stock-based compensation 7,309  6,461 
Advanced payments 1,371  3,912 
Other non-current deferred tax assets 8,726  5,782 
Subtotal 238,883  237,711 
Valuation allowance (116,284) (99,093)
Total $ 122,599  $ 138,618 
Deferred tax liabilities:
Leasing transactions $ (97,871) $ (108,067)
Property and equipment (11,550) (17,600)
Supplies inventory (4,047) (4,128)
Prepaid expenses (1,906) (2,517)
Other non-current deferred tax liabilities (7,225) (6,306)
Total $ (122,599) $ (138,618)
Net deferred tax asset $ —  $ — 
The Company had net operating loss carryforwards for tax purposes of $48.3 million as of December 25, 2022. This is comprised of approximately $21.8 million of federal net operating loss carryovers, approximately $17.6 million of state net operating loss carryovers, and approximately $8.9 million of foreign net operating loss carryovers. The federal net operating loss has an indefinite carryforward period, the state net operating loss carryovers expire at various dates between 2025 and 2042, and the foreign net operating loss carryovers expire at various dates between 2035 and 2042.
As of December 25, 2022, the Company had a deferred tax asset of $39.6 million related to federal tax credits, which expire at various dates between 2037 and 2041. The Company also had a deferred tax asset of $1.2 million related to state tax credits which expire in 2024.
The Company establishes a valuation allowance to reduce the carrying amount of deferred income tax assets when it is more likely than not that it will not realize some portion or all the tax benefit of its deferred income tax assets. The realization of deferred tax assets depends on the generation of future taxable income during the periods in which the temporary differences become deductible. In making this determination, the Company considers all available positive and negative evidence including historical operating losses, the reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies. In 2020, management determined that a full valuation allowance was required and has recorded a full valuation allowance as of December 25, 2022 and at December 26, 2021.
Based on the Company's evaluation of its deferred tax assets, a valuation allowance of approximately $116.3 million has been recorded against the deferred tax asset for federal and state tax credits, federal and state deferred tax assets, all net operating loss carry forwards and the deferred taxes of our foreign subsidiary.
The following table summarizes the Company's unrecognized tax benefits at December 25, 2022, December 26, 2021, and December 27, 2020 (in thousands):
2022 2021 2020
Beginning of year $ 32  $ 80  $ 104 
Increase due to current year tax positions 177  3  — 
Due to decrease to a position taken in a prior year —  —  (24)
Settlements —  —  — 
Reductions related to lapses in the statute of limitations (24) (51) — 
End of year $ 185  32  $ 80 
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $0.2 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.
The Company had outstanding federal and state refund claims of approximately $0.6 million as of December 25, 2022.
Recent Tax Legislation
The CHIPS and Science Act of 2022 (CHIPS) and the Inflation Reduction Act (IRA) of 2022 were signed into law by President Biden on August 9, 2022 and August 16, 2022, respectively. The legislation introduces new options for monetizing certain credits, a corporate alternative minimum tax, and a stock repurchase excise tax. The Company is currently evaluating the impact of CHIPS and IRA, but at present does not expect that any of the provisions included in these Acts would result in a material impact to our deferred tax assets, liabilities, or income taxes payable.