Income Taxes

12 Months Ended

Dec. 28, 2019

INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law and introduced significant changes to U.S. tax law. In addition to the federal income tax rate reduction from 35% to 21% effective for tax years beginning after December 31, 2017, the new legislation set forth a variety of other changes, including a limitation on the tax deductibility of interest expense, the acceleration of business asset expensing, a limitation on the use of net operating losses generated in future years, the repeal of the alternative minimum tax ("AMT"), created new taxes on certain foreign-sourced earnings (GILTI - Global Intangible Low Taxed Income ), and a reduction in the amount of executive pay that could qualify as a tax deduction. For the year-ended December 28, 2019, the Company will be impacted by the repeal of AMT, acceleration of business asset expensing and limitation of executive compensation. The Company may or may not be impacted by the other aforementioned changes to the tax law in the future.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (SAB 118) which addresses income tax accounting implications of the Tax Act. The purpose of SAB 118 was to address any uncertainty or diversity of view in applying ASC 740 Income Taxes in the reporting period in which the Tax Act was enacted. SAB 118 allows for a measurement period to finalize the impacts of the Tax Act, not to extend beyond one year from the date of enactment.

Due to the timing and the complexity involved in applying the provisions of the Act, the Company did not record provisional amounts in our financial statements as of December 30, 2017 related to the one time deemed repatriation of foreign earnings. The Internal Revenue Service issued guidance in 2018 with respect to the one time deemed repatriation of foreign earnings and the Company determined there was no income inclusion related to its controlled foreign corporation under IRC 965 for the year ended December 30, 2017.

The Company deducted for federal income tax purposes accelerated "bonus" depreciation on the majority of its capital expenditures for assets placed in service in fiscal 2011 through fiscal 2019. Therefore, the Company recorded a noncurrent deferred tax liability as to the difference between the book basis and the tax basis of those assets. In addition, as a result of the federal bonus depreciation, the Company recorded a Net Operating Loss ("NOL"). The balance on the federal NOL as of December 28, 2019 was $26.1 million. There are also state NOLs of varying amounts, dependent on each state’s conformity with bonus depreciation. The remaining deferred tax asset related to the Company's state and federal NOL was a tax effected balance of $6.5 million. The Company has not set up a valuation allowance on the NOL balance as we believe more likely than not that this will be realized.

The Company's effective tax rate for fiscal 2019 was 27.0% compared to 26.6% in fiscal 2018. The difference in the effective tax rate is principally attributable to state income taxes.

Components of the Company's income tax benefit and provision consist of the following for fiscal years 2019, 2018, and 2017:


	For the Fiscal Years Ended,
_(thousands)	December 28, 2019		December 29, 2018		December 30, 2017
Current:
Federal	$	(79)	$	(306)	$	409
State	681		797		263

Total current	$	602	$	491	$	672

Deferred:
Federal	$	2,328	$	4,093	$	4,501
State	313		778		829
Foreign	—		89		(79)
Total deferred	$	2,641	$	4,960	$	5,251

Income tax provision	$	3,243	$	5,451	$	5,923

A reconciliation of the expected income tax expense at the statutory federal rate to the Company's actual

income tax expense is as follows:


	For the Fiscal Years Ended,
_(thousands)	December 28, 2019		December 29, 2018		December 30, 2017
Tax expense at statutory federal rate	$	2,518	$	4,303	$	11,673
State and local tax, net of federal expense	785		1,245		720
Windfalls from share-based compensation	(369)		(331)		(412)

Impact of Federal Rate Change	—		—		(6,156)
Valuation allowance	117		192		(126)
Other	192		42		224
Total income tax provision	$	3,243	$	5,451	$	5,923

Components of deferred tax assets (liabilities) are as follows:


	As of,
_(thousands)	December 28, 2019		December 29, 2018
Deferred tax assets:
Net operating loss carryforward	$	6,457	$	4,966
Stock compensation	2,167		1,640
Tax intangible assets	1,327		1,444
Reserves and accruals	9,432		5,776
Income tax credits	1,023		1,345
Allowance for doubtful accounts	606		525
Total deferred tax asset	$	21,012	$	15,696
Less: valuation allowance	310		193
Net deferred tax asset	$	20,702	$	15,503

Deferred tax liabilities:
Prepaids	$	(690)	$	(645)
Depreciation and amortization	(37,169)		(29,374)
Total deferred tax liability	$	(37,859)	$	(30,019)

Net deferred tax liability	$	(17,157)	$	(14,516)

As of December 28, 2019, the Company is no longer subject to U.S. federal examinations by taxing authorities for years prior to 2016, however net operating loss carryforwards from years prior to 2016 remain open to examination as part of any year in which it is utilized in the future.

As of December 28, 2019, the Company believes it is more likely than not that a benefit from foreign net operating loss carryforwards will not be realized. As of December 28, 2019, the Company has provided a valuation allowance against those foreign net operating loss carryforwards of $0.3 million.

The Company establishes reserves when it is more likely than not that the Company will not realize the full tax benefit of a position. The Company has a reserve of $2.7 million for uncertain tax positions as of December 28, 2019 and $2.5 million as of December 29, 2018. The gross unrecognized tax benefits would, if recognized, decrease the Company's effective tax rate.

Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expiration of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, we do not anticipate any significant changes to unrecognized tax benefits over the next 12 months.

The Company recognizes interest and penalties associated with income tax liabilities as income tax expense in the Statement of Operations. No significant penalties or interest are included in income taxes or accounted for on the balance sheet related to unrecognized tax positions as of December 28, 2019, or December 29, 2018.

The following table summarizes the movement in unrecognized tax benefits:


	For the Fiscal Years Ended,
_(thousands)	December 28, 2019		December 29, 2018
Gross Unrecognized Tax Benefits:
Beginning balance	$	2,544	$	2,509
Additions based on current year's tax positions	47		36
Net changes based on prior year's tax positions	87		(1)
Ending balance	$	2,678	$	2,544