Income Tax

Components of the Company’s income tax benefit and provision for fiscal years ended January 3, 2010, January 2, 2011, and January 1, 2012 are as follows:



	Year Ended
	January 3, 2010			January 2, 2011			January 1, 2012
	(in thousands)
Current:
Federal	$	(503	)	$	(7,437	)	$	86
State	1,181			1,880			2,607
Total current income tax expense (benefit)	678			(5,557		)	2,693
Deferred:
Federal	1,976			10,507			23,526
State	(849		)	44			128
Total deferred tax expense	1,127			10,551			23,654
Net income tax expense	$	1,805		$	4,994		$	26,347

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the fiscal years ended January 3, 2010, January 2, 2011, and January 1, 2012 are as follows:



	January 3, 2010				January 2, 2011					January 1, 2012
	(in thousands)		Tax Rate %		(in thousands)			Tax Rate %		(in thousands)			Tax Rate %
Tax at statutory federal rate	$	1,356	35.0	%	$	2,023		35.0	%	$	25,831		35.0	%
State and local tax, net of federal benefit	212		5.5		1,251			21.6		1,778			2.4
Tax on stock compensation adjustments	—		—		1,530			26.5		16			—
Tax on goodwill adjustment	—		—		947			16.4		—			—
Prior year liability true-up	—		—		(524		)	(9.1	)	—			—
Other	237		6.1		(233		)	(4.0	)	(1,278		)	(1.7	)
Tax expense per financial statement	$	1,805	46.6	%	$	4,994		86.4	%	$	26,347		35.7	%

Included in our provision for income tax is a tax imposed by the state of Texas of 0.5% of gross margin in Texas (“margin tax”). The net margin tax accrued for years ended January 2, 2011 and January 1, 2012 was $1.8 million and $2.6 million, respectively.

Components of deferred tax assets and liabilities are as follows:



	January 2, 2011			January 1, 2012
	(in thousands)
Deferred tax assets:
Accrued expenses	$	1,866		$	2,357
Nonqualified deferred compensation	1,002			1,246
Accrued straight-line rent	2,214			2,391
Allowance for doubtful accounts	177			217
Environmental reserves	319			136
Deferred gain on sale leaseback transactions	12,272			11,618
Intangible assets	361			—
Deferred revenue	3,034			2,718
Stock-based compensation expense	3,021			3,316
Accrued bonuses	—			835
Net operating loss and credit carryovers	39			1,338
Other	475			253
Total deferred tax assets	24,780			26,425
Deferred tax liabilities:
Fixed assets	61,524			87,071
Prepaid assets	274			358
Intangible assets	—			3,909
Total deferred tax liabilities	61,798			91,338
Net deferred income tax assets (liabilities)	$	(37,018	)	$	(64,913	)
Current net deferred tax assets (liabilities)	$	2,243		$	3,303
Noncurrent net deferred tax assets (liabilities)	$	(39,261	)	$	(68,216	)

The Company has net operating losses of $3.9 million and $2.5 million as of January 2, 2011 and January 1, 2012, respectively. These operating losses expire as of 2030. The Company has determined that it is more likely than not that all deferred tax assets will be realized, and has therefore determined that no valuation allowance is needed as of January 2, 2011 or January 1, 2012.

During the third quarter of 2010, an analysis of our APIC pool was performed, and it was determined that no APIC pool existed. Restricted stock vesting transactions resulted in excess tax benefits of $0.6 million which were adjusted to tax expense during quarter ended October 3, 2010. In addition, during the second quarter 2010, certain outstanding stock options were voluntarily forfeited resulting in a tax charge of $0.9 million which was also adjusted to tax expense. The $0.9 million tax adjustment for goodwill relates to the sale of the Village Market stores in the second quarter of 2010.

Uncertain Tax Positions

It is the Company’s policy to recognize interest and penalties related to uncertain tax positions in general and administrative expense. Interest and penalties incurred by the company have not been material in 2009, 2010 or 2011. The Company files income tax returns in the U.S. federal jurisdiction, Texas, Oklahoma, Louisiana and New Mexico. The Company is subject to examinations in all jurisdictions for all returns for the 2007 through 2011 tax years.

As of January 1, 2012, all tax positions taken by the Company are considered highly certain. There are no positions the Company reasonably anticipates will significantly increase or decrease within 12 months of the reporting date, and therefore no adjustments have been recorded related to unrecognized tax benefits.