Income Taxes

12 Months Ended

Jan. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

17. Income Taxes

Income Tax Provision

The income tax provision consists of the following:

	Year Ended
	January 2, 2022			January 3, 2021		December 29, 2019
U.S. Federal—current	$	60,329		$	63,957	$	36,091
U.S. Federal—deferred		(1,663	)		3,725		186
U.S. Federal—total		58,666			67,682		36,277
State—current		19,715			20,442		8,649
State—deferred		(146	)		1,304		1,613
State—total		19,569			21,746		10,262
Total provision	$	78,235		$	89,428	$	46,539

Tax Rate Reconciliation

Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pre-tax income as a result of the following:

	Year Ended
	January 2, 2022			January 3, 2021			December 29, 2019
Federal statutory rate		21.0	%		21.0	%		21.0	%
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal benefit		4.8			4.6			4.4
Enhanced charitable contribution impact		(1.5	)		(1.0	)		(0.7	)
Change in uncertain tax position reserves		—			0.1			(1.1	)
Amended returns		(0.2	)		(1.0	)		—
Benefit of federal tax credit		(0.4	)		(0.9	)		(1.6	)
Other, net		0.6			0.9			1.7
Effective tax rate		24.3	%		23.7	%		23.7	%

The effective income tax rate increased to 24.3% in 2021 from 23.7% in 2020 primarily due to benefits recognized from amended returns in 2020, partially offset by increased charitable contribution deductions in 2021. The effective income tax rate was 23.7% in 2020 and 2019. The effective income tax rate in 2020 was primarily affected by a decrease in federal tax credits and prior year release of uncertain tax positions, partially offset by an increase in charitable contribution deductions and the benefit recognized from amended returns.

Excess tax benefits or detriments associated with share-based payment awards are recognized as income tax benefits or expense in the income statement. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. The income tax benefit resulting from share-based awards was $0.2 million for 2021 and is reflected as a reduction to the 2021 income tax provision. The income tax detriment resulting from share-based awards were $0.5 million and $1.6 million for 2020 and 2019, respectively, and are reflected as increases to the 2020 and 2019 income tax provisions.

Deferred Taxes

Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows:

	As Of
	January 2, 2022			January 3, 2021
Deferred tax assets
Employee benefits	$	17,543		$	19,498
Tax credits		228			270
Operating leases		320,650			309,756
Other lease related(1)		5,881			5,962
Other accrued liabilities		4,283			3,926
Charitable contribution carryforward		1,781			1,028
Inventories and other		3,206			4,504
Total gross deferred tax assets		353,572			344,944
Deferred tax liabilities
Depreciation and amortization		(88,970	)		(93,738	)
Intangible assets		(45,978	)		(39,602	)
Operating leases		(275,509	)		(268,670	)
Asset retirement obligations(1)		(1,010	)		(1,007	)
Total gross deferred tax liabilities		(411,467	)		(403,017	)
Net deferred tax (liability) / asset	$	(57,895	)	$	(58,073	)

(1)The deferred tax assets and liabilities disclosure at January 3, 2021 has been adjusted to reflect the gross deferred asset retirement asset and related gross deferred asset retirement obligation.

A valuation allowance is established for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that the realization of future deductions is uncertain.

Management performs an assessment over future taxable income to analyze whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company has evaluated all available positive and negative evidence and believes it is probable that the deferred tax assets will be realized and has not recorded a valuation allowance against the Company’s deferred tax assets as of January 2, 2022 and January 3, 2021.

The Company applies the authoritative accounting guidance under ASC 740 for the recognition, measurement, classification and disclosure of uncertain tax positions taken or expected to be taken in a tax return.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	As Of
	January 2, 2022			January 3, 2021			December 29, 2019
Beginning balance	$	1,803		$	1,343		$	3,658
Additions based on tax positions related to the    current year		16			16			289
Additions based on tax positions related to prior years		31			647			—
Reductions for tax positions for prior years		(80	)		(203	)		(2,604	)
Ending balance	$	1,770		$	1,803		$	1,343

The Company had unrecognized tax benefits (tax effected) of $1.8 million as of January 2, 2022 and January 3, 2021. These would impact the effective tax rate if recognized.

The Company’s policy is to recognize accrued interest and penalties as a component of income tax expense.

The Company does not anticipate a decrease in the total amount of unrecognized tax benefits during the next twelve months.

The Company files income tax returns with federal and state tax authorities within the United States. The general statute of limitations for income tax examinations remains open for federal tax returns for tax years 2016 through 2020 and state tax returns for the tax years 2017 through 2020. The Company’s U.S. federal income tax returns for the fiscal years ended December 31, 2017, and January 1, 2017, are currently under examination by the Internal Revenue Service.