Income Taxes

12 Months Ended

Jan. 03, 2023

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

Income tax benefit for the last three fiscal years consists of the following (in thousands):

	Fiscal Year
	2022			2021			2020
Current:
Federal	$	647		$	2,776		$	(5,360	)
State		379			323			(314	)
		1,026			3,099			(5,674	)
Deferred:
Federal		(12,653	)		(16,872	)		(21,403	)
State		(757	)		(1,803	)		(4,988	)
		(13,410	)		(18,675	)		(26,391	)
Income tax benefit	$	(12,384	)	$	(15,576	)	$	(32,065	)

Income tax benefit for the last three fiscal years differs from the amount that would result from applying the federal statutory rate as follows:

	Fiscal Year
	2022			2021			2020
Income tax at statutory rates		(21.0	)%		(21.0	)%		(21.0	)%
State income taxes, net of federal benefit		(10.4	)		(5.0	)		(5.2	)
Permanent differences		17.3			0.9			0.3
Income tax credits		(156.8	)		(58.9	)		(5.1	)
Return to provision		(4.3	)		2.1			—
Prior year tax credit true-up		14.1			—			(0.4	)
Benefit from net operating loss carryback		1.8			2.8			(5.2	)
Change in valuation allowance		6.8			(1.1	)		—
Other, net		3.4			(1.0	)		1.0
		(149.1	)%		(81.2	)%		(35.6	)%

The components of the deferred income tax asset (liability) consist of the following (in thousands):

	January 3, 2023			December 28, 2021
Deferred income tax asset:
Accrued expenses	$	11,887		$	11,803
Other		3,192			5,305
Deferred revenues		28			28
Stock-based compensation		4,596			4,123
Operating lease liability		122,982			123,544
Income tax credits		56,780			41,826
Net operating losses		7,347			5,569
State tax		80			72
Gross deferred income tax asset		206,892			192,270
Valuation allowance		(1,151	)		(586	)
Deferred income tax asset, net of valuation allowance		205,741			191,684
Deferred income tax liability:
Property and equipment		(51,659	)		(52,371	)
Intangible assets		(2,895	)		(1,646	)
Operating lease assets		(108,307	)		(108,333	)
Smallwares		(4,568	)		(4,432	)
Deferred income tax liability		(167,429	)		(166,782	)
Net deferred income tax asset	$	38,312		$	24,902

At January 3, 2023, we had federal and California income tax credit carryforwards of approximately $55.9 million and $0.8 million, respectively, consisting primarily of the credit for FICA taxes paid on reported team member tip income and California enterprise zone credits. The FICA tax credits will begin to expire in 2038, and the California enterprise zone credits will begin to expire in 2023.

At January 3, 2023, we have a federal net operating loss (“NOL”) of approximately $4.0 million and state NOLs of approximately $142.8 million that will expire over various periods beginning 2023.

We have completed a thorough analysis of our ability to use our federal and state tax credit and net operating loss carry forwards. As of January 3, 2023 and December 28, 2021, we have determined that no valuation allowance is required against federal tax credit carryforwards; however, we have recorded a valuation allowance against certain state net operating loss and tax credit carryforwards of $1.2 million and $0.6 million, respectively, net of the federal benefit which are not more likely than not to be realized prior to expiration. We recognize interest and penalties related to uncertain tax positions in income tax expense. At January 3, 2023 and December 28, 2021, we had accrued $0.1 million for interest and penalties with respect to uncertain tax positions.

As of January 3, 2023, unrecognized tax benefits recorded was approximately $1.2 million, of which approximately $1.1 million, if reversed would impact our effective tax rate. We anticipate no change in our liability for unrecognized tax benefits within the next twelve-month period.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Fiscal Year
	2022			2021			2020
Gross unrecognized tax benefits at beginning of year	$	1,198		$	1,333		$	1,345
Increases for tax positions taken in prior years		3			—			190
Decreases for tax positions taken in prior years		(29	)		(20	)		(291	)
Increases for tax positions taken in the current year		91			69			89
Lapse in statute of limitations		(14	)		(184	)		—
Gross unrecognized tax benefits at end of year	$	1,249		$	1,198		$	1,333

Our uncertain tax positions are related to tax years that remain subject to examination by tax agencies. As of January 3, 2023, the earliest tax year still subject to examination by the Internal Revenue Service is 2015. The earliest year still subject to examination by a significant state or local taxing jurisdiction is 2018.