Income Taxes

12 Months Ended

Dec. 28, 2019

Income tax expense for years 2019, 2018 and 2017 consisted of the following:



	Years Ended
	December 28, 2019			December 29, 2018			December 30, 2017
Current:
Federal	$	8,059		$	7,261		$	9,341
State	3,800			2,911			2,265
Foreign	(49		)	276			263
Total current income tax expense	11,810			10,448			11,869

Deferred:
Federal	(5,160		)	(2,924		)	(10,439		)
State	(1,474		)	(661		)	(803		)
Total deferred income tax (benefit)	(6,634		)	(3,585		)	(11,242		)
				.
Total income tax expense	$	5,176		$	6,863		$	627

Temporary differences comprising the net deferred income tax liability shown in the Company’s consolidated balance sheets were as follows:



	December 28, 2019			December 29, 2018
Deferred tax asset:
Lease liabilities	$	17,651		$	—
Tax carryforwards	7,767			—
Accrued compensation	6,682			4,348
Allowance for doubtful accounts	1,789			1,044
Deferred rent	—			201
Other	327			78
Total deferred tax asset	$	34,216		$	5,671

Deferred tax liability:
Acquired intangibles	$	(60,045	)	$	(17,248	)
Right-of-use assets	(17,189		)	—
Depreciation and amortization	(6,289		)	(2,444		)
Cash to accrual adjustment	(2,569		)	(1,962		)
Other	(1,465		)	(241		)
Total deferred tax liability	(87,557		)	(21,895		)

Net deferred tax liability	$	(53,341	)	$	(16,224	)

As of December 28, 2019 and December 29, 2018, the Company had net non-current deferred tax liabilities of $53,341 and $16,224, respectively. No valuation allowance against the Company’s deferred income tax assets is needed as of December 28, 2019 and December 29, 2018 as it is more-likely-than-not that the positions will be realized upon settlement.

Deferred income tax liabilities primarily relate to intangible assets and accounting basis adjustments where the Company has a future obligation for tax purposes. During 2019 and 2018, the Company recorded a deferred tax liability of $43,151 and $8,903, respectively, in conjunction with the purchase price allocation of the intangible assets associated with acquisitions.

Total income tax expense was different than the amount computed by applying the Federal statutory rate as follows:



	Years Ended
	December 28, 2019			December 29, 2018			December 30, 2017
Tax at federal statutory rate	$	6,076		$	7,081		$	8,622
Stock based compensation	(2,808		)	(1,014		)	(1,016		)
State taxes, net of Federal benefit	1,990			1,424			714
Federal and state tax credits	(1,247		)	(923		)	(250		)
Changes in unrecognized tax position	425			111			506
Domestic production activities deduction	—			—			(936		)
Transition tax	—			110			357
Effect of change in income tax rate	—			31			(6,249		)
Other	740			43			(1,121		)
Total income tax expense	$	5,176		$	6,863		$	627

On December 22, 2017 the Tax Cuts and Jobs Act (“2017 Tax Reform”) was enacted in the United States. Among its many provisions, the 2017 Tax Reform reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. The 2017 Tax Reform required a one-time transition tax on undistributed foreign earnings and created a new provision designed to tax global intangible low-taxed income (“GILTI”). Also, the SEC issued guidance in Staff Accounting Bulletin No. 118 which provided for a measurement period of up to one year after the enactment for companies to complete their accounting for the 2017 Tax Reform.

As a result of the 2017 Tax Reform, during the fourth quarter of 2017, the Company recorded a decrease of $6,249 to its deferred tax assets and liabilities, with a corresponding adjustment to deferred income tax expense. In addition, during the fourth quarter of 2017, the Company recorded a provisional liability of $357 with a corresponding adjustment to income tax expense related to the one-time transition tax on undistributed foreign earnings. The provisional adjustment related to the 2017 Tax Reform was determined using reasonable estimates. During the fiscal year ended December 29, 2018, the Company recognized a $110 adjustment to the provisional amount recorded as of December 30, 2017.

The Company’s consolidated effective income tax rate was 17.8%, 20.4% and 2.5% for fiscal years 2019, 2018 and 2017, respectively. The difference between the effective income tax rate and the combined statutory federal and state income tax rate was primarily due to excess tax benefits from share-based payments and federal credits, offset by other permanent items. Also contributing to the lower effective tax rate for fiscal year 2017 was the re-measurement of the Company's deferred tax assets and liabilities as a result of the change in the U.S. corporate income tax rate and the Federal domestic production activities deduction.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. The California Franchise Tax Board (“CFTB”) challenged research and development tax credits generated for the years 2012 to 2014. During the fourth quarter of 2017, the Company settled with the CFTB and paid $839 for research and development tax credits for the years 2005 through 2011. Fiscal years 2012 through 2019 are considered open tax years in the State of California and 2016 through 2019 in the U.S. federal jurisdiction and other state and foreign jurisdictions. The Company’s 2014 U.S. federal income tax return was reviewed by the Internal Revenue Service and closed with no change during the second quarter of 2018.

As of December 28, 2019 and December 29, 2018, the Company had $887 and $548, respectively, of gross unrecognized tax benefits, which if recognized, $769 and $548 would affect our effective tax rate. It is not expected that there will be a significant change in the unrecognized tax benefits in the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	December 28, 2019			December 29, 2018		December 30, 2017
Balance, beginning of period	$	548		$	437	$	770
Additions based on tax positions related to the current year	124			45		49
Additions for tax positions of prior years	338			66		525
Lapse of statute of limitations	(123		)			—
Reductions for positions of prior years	—			—		(68		)
Settlement	—			—		(839		)
Balance, end of period	$	887		$	548	$	437

The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accrued interest and penalties related to unrecognized tax benefits in the Consolidated Balance Sheet were $204 as of December 28, 2019. An immaterial amount of interest and penalties were recognized in the provision for income taxes during the years ended December 29, 2018 and December 30, 2017.