Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense for years 2022, 2021, and 2020 consists of the following:

	Fiscal Years Ended
	December 31, 2022		January 1, 2022		January 2, 2021
Current:
Federal	$	20,977	$	14,251	$	13,192
State	9,040		7,353		7,690
Foreign	943		400		137
Total current income tax expense	30,960		22,004		21,019
Deferred:
Federal	(15,401)		(3,740)		(10,708)
State	(3,161)		(3,238)		(2,317)
Foreign	3		(68)		(44)
Total deferred income tax benefit	(18,559)		(7,046)		(13,069)
			.
Total income tax expense	$	12,401	$	14,958	$	7,950

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

	December 31, 2022		January 1, 2022
Deferred tax asset:
Lease liabilities	$	10,732	$	11,811
Tax carryforwards	3,863		5,734
Accrued compensation	11,945		9,133
Accrued payroll tax	—		1,414
Allowance for doubtful accounts	1,559		2,306
Capitalized Research and Development Costs	14,795		—
Other	1,025		369
Total deferred tax asset	$	43,919	$	30,767
Deferred tax liability:
Acquired intangibles	$	(30,226)	$	(35,620)
Right-of-use assets	(10,361)		(11,338)
Depreciation and amortization	(9,467)		(8,088)
Cash to accrual adjustment	—		(609)
Other	(758)		(497)
Total deferred tax liability	$	(50,812)	$	(56,152)
Net deferred tax liability	$	(6,893)	$	(25,385)

As of December 31, 2022 and January 1, 2022, the Company had net non-current deferred tax liabilities of $6,893 and $25,385, respectively. No material valuation allowances are recorded against the Company’s deferred income tax assets as of December 31, 2022 and January 1, 2022. Deferred income tax liabilities primarily relate to depreciation and intangible assets, which are partially offset by deferred tax assets related to accrued compensation, the capitalization of research and development costs under Section 174 of the Internal Revenue Code, and other deferred tax items. Beginning in 2022, the Tax Cuts and Jobs Act eliminates the option to currently deduct research and development expenditures in the period incurred and requires taxpayers to capitalize and amortize such expenditures over five years pursuant to Section 174 of the Internal Revenue Code.

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

	Fiscal Years Ended
	December 31, 2022		January 1, 2022		January 2, 2021
Tax at federal statutory rate	$	13,099	$	13,042	$	6,083
State taxes, net of Federal benefit	3,853		3,908		2,653
Stock-based compensation	(1,495)		(1,432)		(157)
Federal and state tax credits	(3,983)		(1,242)		(1,544)
Changes in unrecognized tax position	(73)		96		179
Other	1,000		586		736
Total income tax expense	$	12,401	$	14,958	$	7,950

The Company’s consolidated effective income tax rate was 19.9%, 24.1%, and 27.4% for fiscal years 2022, 2021, and 2020, respectively.

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. Fiscal years 2012 through 2022 are considered open tax years in the State of California, and 2019 through 2022 are considered open tax years in the U.S. Federal jurisdiction and other state and foreign jurisdictions.

As of December 31, 2022 and January 1, 2022, the Company had $966 and $1,071, respectively, of gross unrecognized tax benefits, which if recognized, $847 and $952 would affect our effective tax rate. The Company expects to reverse an immaterial amount of unrecognized tax benefits in the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	December 31, 2022		January 1, 2022		January 2, 2021
Balance, beginning of period	$	1,071	$	1,022	$	887
Additions based on tax positions related to the current year	131		124		155
Additions for tax positions of prior years	6		—		30
Lapse of statute of limitations	(103)		(45)		(50)
Reductions for positions of prior years	(139)		(30)		—
Balance, end of period	$	966	$	1,071	$	1,022

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 $340 and $296 as of December 31, 2022 and January 1, 2022, respectively.