Income Taxes

12 Months Ended

Jan. 01, 2023

Income Tax Disclosure [Abstract]

Income Taxes

(7)Income Taxes

Income before provision for income taxes in 2022, 2021 and 2020 consisted of the following:

	2022		2021		2020
U.S.	$	560,115	$	611,267	$	541,646
Foreign		12,718		14,438		13,484
Income before provision for income taxes	$	572,833	$	625,705	$	555,130

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 2022, 2021 and 2020 are summarized as follows:

	2022			2021			2020
Federal income tax provision based on the statutory rate	$	120,295		$	131,398		$	116,577
State and local income taxes, net of related Federal income taxes		15,978			15,108			16,660
Non-resident withholding and foreign income taxes		23,276			21,833			18,741
Foreign tax and other tax credits		(19,849	)		(23,509	)		(19,506	)
Foreign derived intangible income		(15,068	)		(16,800	)		(12,390	)
Excess tax benefits from equity-based compensation		(2,169	)		(18,911	)		(60,364	)
Non-deductible expenses, net		3,322			4,501			4,359
Unrecognized tax (benefit) provision, net of related Federal income taxes		(3,788	)		4,372			516
Other		(1,427	)		(2,754	)		(759	)
Provision for income taxes	$	120,570		$	115,238		$	63,834

Excess tax benefits from equity-based compensation activity resulted in a decrease in the Company’s provision for income taxes of $2.2 million in 2022, $18.9 million in 2021 and $60.4 million in 2020, primarily due to the recognition of excess tax benefits for options exercised and the vesting of equity awards.

The components of the 2022, 2021 and 2020 consolidated provision for income taxes were as follows:

	2022			2021			2020
Provision for Federal income taxes
Current provision	$	76,552		$	74,910		$	19,894
Deferred provision (benefit)		4,125			(2,051	)		14,301
Total provision for Federal income taxes		80,677			72,859			34,195
Provision for state and local income taxes
Current provision		20,489			16,507			10,775
Deferred provision (benefit)		577			(461	)		123
Total provision for state and local income taxes		21,066			16,046			10,898
Provision for non-resident withholding and foreign income taxes
Current provision		23,276			21,833			18,741
Deferred (benefit) provision		(4,449	)		4,500			—
Total provision for non-resident withholding and foreign income taxes		18,827			26,333			18,741
Provision for income taxes	$	120,570		$	115,238		$	63,834

As of January 1, 2023 and January 2, 2022, the significant components of net deferred income taxes were as follows:

	January 1, 2023			January 2, 2022
Deferred income tax assets
Operating lease liabilities	$	56,750		$	54,478
Accruals and reserves		11,330			15,207
Insurance reserves		13,039			12,867
Non-cash equity-based compensation expense		8,849			7,861
Foreign tax credit		13,464			10,206
Other		12,150			8,158
Deferred income tax assets before valuation allowance		115,582			108,777
Less, valuation allowance		(15,001	)		(11,364	)
Deferred income tax assets, net		100,581			97,413
Deferred income tax liabilities
Operating lease right-of-use assets		54,057			51,793
Capitalized software		27,443			19,828
Depreciation, amortization and asset basis differences		15,851			18,570
Unrealized gain on investments		9,065			9,035
Deferred income tax liabilities		106,416			99,226
Net deferred income taxes	$	(5,835	)	$	(1,813	)

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 1, 2023 and January 2, 2022, the Company had total foreign tax credits of $13.5 million and $10.2 million, respectively, which were fully offset with a corresponding valuation allowance. As of January 1, 2023 and January 2, 2022, the Company also had valuation allowances related to interest deductibility in separately filed states of $1.5 million and $1.2 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 1, 2023, January 2, 2022 and January 3, 2021 is as follows:

	January 1, 2023			January 2, 2022			January 3, 2021
Unrecognized tax benefits at beginning of period	$	7,690		$	3,318		$	2,802
Additions for tax positions of current year		887			2,611			494
Additions for tax positions of prior years		958			2624			506
Reductions for changes in prior year tax positions		(4,521	)		(379	)		(178	)
Reductions for lapses of applicable statute of limitations		(1,112	)		(484	)		(306	)
Unrecognized tax benefits at end of period	$	3,902		$	7,690		$	3,318

As of January 1, 2023, the amount of unrecognized tax benefits was $3.9 million of which, if ultimately recognized, $3.6 million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. As of January 1, 2023, the Company had $0.3 million of accrued interest and no accrued penalties.

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.

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 2019, 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.