Income Taxes

12 Months Ended

Jan. 01, 2023

Income Tax Disclosure [Abstract]

Income Taxes

(8)Income Taxes

Income tax expense (benefit) consists of the following:

	Current		Deferred			Total
	(In thousands)
Fiscal 2022:
Federal	$	2,958	$	1,905		$	4,863
State		1,745		201			1,946
	$	4,703	$	2,106		$	6,809
Fiscal 2021:
Federal	$	23,422	$	1,121		$	24,543
State		7,582		613			8,195
	$	31,004	$	1,734		$	32,738
Fiscal 2020:
Federal	$	13,786	$	86		$	13,872
State		4,871		(298	)		4,573
	$	18,657	$	(212	)	$	18,445

The provision for income taxes differs from the amounts computed by applying the federal statutory tax rate of 21% to earnings before income taxes, as follows:

	Fiscal Year Ended
	January 1, 2023			January 2, 2022			January 3, 2021
	(In thousands)
Tax expense at statutory rate	$	6,918		$	28,376		$	15,621
State tax expense, net of federal tax effect		1,734			7,167			3,975
Additional deduction related to share-based compensation		(1,321	)		(2,623	)		—
Nondeductible expenses		259			729			86
Tax credits		(826	)		(603	)		(246	)
Change in valuation allowance		—			(318	)		(418	)
CARES Act net operating loss carryback		—			—			(822	)
Write-offs related to nonvested share awards		—			—			260
Other		45			10			(11	)
	$	6,809		$	32,738		$	18,445

Deferred tax assets and liabilities as of January 1, 2023 and January 2, 2022 are tax-effected based on the federal and state corporate income tax rates.

Deferred tax assets and liabilities consist of the following tax-effected temporary differences:

	January 1, 2023			January 2, 2022
	(In thousands)
Deferred tax assets:
Employee benefit-related liabilities	$	2,781		$	2,889
Insurance liabilities		2,654			2,421
Deferred rent		1,632			2,828
Gift card liability		1,594			1,420
Merchandise inventory		1,103			1,215
Property, plant and equipment		816			814
Share-based compensation		810			805
State taxes		379			1,545
California Enterprise Zone Tax Credits		325			381
Other deferred tax assets		606			686
Gross deferred tax assets		12,700			15,004
Less: Valuation allowance		(280	)		(280	)
Deferred tax assets, net of valuation allowance		12,420			14,724
Deferred tax liabilities:
Prepaid expense		(992	)		(1,147	)
Federal liability on state deferred tax assets		(954	)		(996	)
Accrual for software as a service		(483	)		(484	)
Deferred tax liabilities		(2,429	)		(2,627	)
Net deferred tax assets	$	9,991		$	12,097

As of fiscal 2022 and 2021, the Company maintained a valuation allowance of $0.3 million related to unused California Enterprise Zone Tax Credits, which the Company will not be able to carry forward beyond the 2023 tax year as a result of California’s termination of this program. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will 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 the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections of future taxable income over the periods during which the deferred tax assets are deductible, except as noted above, management believes it is more likely than not that the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income are reduced. Certain prior period amounts were reclassified to conform with current period presentation requirements.

The Company files a consolidated federal income tax return and files tax returns in various state and local jurisdictions. The statutes of limitations for its consolidated federal income tax returns are open for fiscal years 2019 and after, and state and local income tax returns are open for fiscal years 2018 and after.

As of January 1, 2023 and January 2, 2022, the Company had no unrecognized tax benefits that, if recognized, would affect the Company’s effective income tax rate over the next 12 months. The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expense. As of January 1, 2023 and January 2, 2022, the Company had no accrued interest or penalties.