Income Taxes

12 Months Ended

Jan. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

(7)Income Taxes

Income before provision for income taxes in 2021, 2020 and 2019 consisted of the following:

	2021		2020		2019
U.S.	$	611,267	$	541,646	$	468,467
Foreign		14,438		13,484		14,170
Income before provision for income taxes	$	625,705	$	555,130	$	482,637

The differences between the U.S. Federal statutory income tax provision (using the statutory rate of 21%) and the Company’s consolidated provision for income taxes for 2021, 2020 and 2019 are summarized as follows:

	2021			2020			2019
Federal income tax provision based on the statutory rate	$	131,398		$	116,577		$	101,354
State and local income taxes, net of related Federal income taxes		15,108			16,660			15,141
Non-resident withholding and foreign income taxes		21,833			18,741			20,351
Foreign tax and other tax credits		(23,509	)		(19,506	)		(20,090	)
Foreign derived intangible income		(16,800	)		(12,390	)		(12,810	)
Excess tax benefits from equity-based compensation		(18,911	)		(60,364	)		(25,735	)
Non-deductible expenses, net		4,501			4,359			3,090
Unrecognized tax provision, net of related Federal income taxes		4,372			516			694
Other		(2,754	)		(759	)		(67	)
Provision for income taxes	$	115,238		$	63,834		$	81,928

Excess tax benefits from equity-based compensation activity resulted in a decrease in the Company’s provision for income taxes of $18.9 million in 2021, $60.4 million in 2020 and $25.7 million in 2019, primarily due to the recognition of excess tax benefits for options exercised and the vesting of equity awards.

The components of the 2021, 2020 and 2019 consolidated provision for income taxes were as follows:

	2021			2020		2019
Provision for Federal income taxes
Current provision	$	74,910		$	19,894	$	49,539
Deferred (benefit) provision		(2,051	)		14,301		(2,862	)
Total provision for Federal income taxes		72,859			34,195		46,677
Provision for state and local income taxes
Current provision		16,507			10,775		15,335
Deferred (benefit) provision		(461	)		123		(435	)
Total provision for state and local income taxes		16,046			10,898		14,900
Provision for non-resident withholding and foreign income taxes
Current provision		21,833			18,741		20,351
Deferred provision		4,500			—		—
Total provision for non-resident withholding and foreign income taxes		26,333			18,741		20,351
Provision for income taxes	$	115,238		$	63,834	$	81,928

As of January 2, 2022 and January 3, 2021, the significant components of net deferred income taxes were as follows:

	January 2, 2022			January 3, 2021
Deferred income tax assets
Operating lease liabilities	$	54,478		$	58,885
Accruals and reserves		15,207			14,148
Insurance reserves		12,867			12,447
Non-cash equity-based compensation expense		7,861			8,331
Foreign tax credit		10,206			6,603
Other		8,158			7,720
Deferred income tax assets before valuation allowance		108,777			108,134
Less: Valuation allowance		(11,364	)		(7,600	)
Total deferred income tax assets		97,413			100,534
Deferred income tax liabilities
Operating lease right-of-use assets		51,793			56,446
Capitalized software		19,828			29,596
Depreciation, amortization and asset basis differences		18,570			18,687
Unrealized gain on investments		9,035			—
Total deferred income tax liabilities		99,226			104,729
Net deferred income taxes	$	(1,813	)	$	(4,195	)

Realization of the Company’s deferred tax assets is dependent upon many factors, including, but not limited to, the Company’s ability to generate sufficient taxable income. Although realization of the Company’s deferred tax assets is not assured, on an ongoing basis, management assesses whether it remains more likely than not the deferred tax assets will be realized.

As of January 2, 2022 and January 3, 2021, the Company had total foreign tax credits of $10.2 million and $6.6 million, respectively, which were fully offset with a corresponding valuation allowance. As of January 2, 2022 and January 3, 2021, the Company also had valuation allowances related to interest deductibility in separately filed states of $1.2 million and $1.0 million, respectively. Management believes the remaining deferred tax assets will be realized.

For financial reporting purposes, the Company’s investment in foreign subsidiaries does not exceed its tax basis. Therefore, no deferred income taxes have been provided. In 2021, the Company recorded an unrealized gain on its non-controlling interest in DPC Dash (Note 4) and accordingly, has also recorded a deferred tax liability representing the book basis over tax basis related to this unrealized gain.

The Company recognizes the financial statement benefit of a tax position if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authorities widely understood administrative practices and precedents. For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes accrued interest related to unrecognized tax benefits in interest expense and recognizes penalties in income tax expense.

A reconciliation of the beginning and ending amount of unrecognized tax benefits as of January 2, 2022, January 3, 2021 and December 29, 2019 is as follows:

	January 2, 2022			January 3, 2021			December 29, 2019
Unrecognized tax benefits at beginning of period	$	3,318		$	2,802		$	1,964
Additions for tax positions of current year		2,611			494			468
Additions for tax positions of prior years		2,624			506			789
Reductions for changes in prior year tax positions		(379	)		(178	)		(284	)
Reductions for lapses of applicable statute of limitations		(484	)		(306	)		(135	)
Unrecognized tax benefits at end of period	$	7,690		$	3,318		$	2,802

As of January 2, 2022, the amount of unrecognized tax benefits was $7.7 million of which, if ultimately recognized, $6.7 million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. As of January 2, 2022, the Company had $0.3 million of accrued interest and no accrued penalties.

As of January 3, 2021, the amount of unrecognized tax benefits was $3.3 million of which, if ultimately recognized, $2.4 million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. As of January 3, 2021, the Company had $0.2 million of accrued interest and no accrued penalties.

There are currently no Internal Revenue Service audits in progress for the Company. The Company continues to be under examination by certain states. The Company’s Federal statute of limitation has expired for years prior to 2018, but it varies for state and foreign locations. The Company believes appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.