Income Taxes

12 Months Ended

Dec. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

9. INCOME TAXES

The provision (benefit) for income taxes is based on the following components (in thousands):

	December 30,		December 25,		December 26,
For the Years Ended	2020		2019		2018
Current income taxes:
Federal	$	520	$	—	$	—
State		1,123		104		220
Total current		1,643		104		220
Deferred income taxes:
Federal		3,350		5,991		(3,526)
State		658		3,587		98
Total deferred		4,008		9,578		(3,428)
Tax provision (benefit) for income taxes	$	5,651	$	9,682	$	(3,208)

On March 27, 2020, President Trump signed into a law a stimulus package, CARES Act, which contains several tax provisions and deferral of employer Social Security taxes that are otherwise owed for wage payments. The tax provisions include a correction of a previous drafting error related to QIP and immediate refundability of all remaining AMT credits. The new provisions did not have a material impact on our consolidated financial statements.

During the year ended December 30, 2020, the Company received a NOPA for the years ended December 27, 2017 and December 28, 2016, related to the Company’s methodology regarding its ordering of utilization of AMT NOL. This resulted in payment of $0.4 million, and the audit is closed. As a result of the CARES Act, discussed above, this amount is immediately refundable upon filing of a Form 1139, which the Company filed during the year ended December 30, 2020 and recognized a receivable, included in accounts and other receivables within the consolidated balance sheet as of December 30, 2020.

The provision for income taxes differs from the amount computed by applying the federal income tax rate of 21.0% for fiscal 2020, 2019 and 2018 as follows:

	December 30,		December 25,		December 26,
For the Years Ended	2020		2019		2018
Statutory federal income tax rate applied to earnings before income taxes and extraordinary items	21.0	%	21.0	%	21.0	%
State tax benefit (net of federal benefit)	4.3		6.0		5.0
Change in valuation allowance	0.4		2.4		(6.9)
TRA expense	—		—		1.3
WOTC Credit	(0.9)		(0.8)		3.3
Stock option exercises	(6.6)		(1.0)		2.1
Other	0.6		0.3		0.5
Total	18.8	%	27.9	%	26.3	%

As of December 30, 2020, the Company had no federal and less than $0.1 million state net operating loss (“NOL”) carryforwards. These State NOLs expire beginning 2028. The Company also has state enterprise zone credits of approximately $10.2 million, which expire in 2023, and federal Work Opportunity Credits of approximately $0.5 million, which will start expiring in 2039. The utilization of NOL carryforwards may be subject to limitation under section 382 of the Internal Revenue Code of 1986 (the “Code”) and similar state law provisions. 

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets. After evaluating all of the positive and negative evidence, including the Company’s continued income from operations, the Company concluded that it is more likely than not that its deferred tax assets will be realized. In fiscal 2019 and 2018, the Company recorded a valuation allowance of approximately $0.9 million and $5.1 million, respectively, against its deferred tax asset resulting from certain tax credits that may not be realizable prior to the time the credits expire. In fiscal 2020, the Company recorded an additional $0.1 million to the valuation allowance. As of December 30, 2020, the total valuation allowance was $6.1 million.

On July 30, 2014, the Company entered into the TRA. The TRA calls for the Company to pay its pre-IPO stockholders 85% of the cash savings that the Company realizes in its taxes as a result of utilizing its NOLs and other tax attributes attributable to preceding periods. The TRA charge expense (benefit) is a permanent add-back to the Company’s taxable income. TRA resulted in $0.1 million of expense in fiscal 2020 as a result of changes to future forecasted results and deduction on 2018 legal settlement accrual, $0.1 million of expense in fiscal 2019 as a result of changes to future forecasted results, $0.8 million of benefit in fiscal 2018 as a result of changes to future forecasted results and timing of deductibility of certain temporary differences including the current year settlement accrual and $5.6 million benefit in fiscal 2017 as a result of reduction in the federal corporate income tax rate related to tax reform. In fiscal 2020, we paid $5.2 million to our pre-IPO stockholders under the TRA.

As of December 30, 2020 and December 25, 2019, the deferred tax assets related to California Enterprise Zone credits, net of valuation allowances are $2.5 million and $3.3 million, respectively.

The Company’s deferred tax assets and liabilities as of December 30, 2020 and December 25, 2019 are summarized below.

	December 30,		December 25,
	2020		2019
Deferred assets:
Capital leases	$	27	$	31
Accrued vacation		506		454
Accrued legal		—		4,434
Accrued workers’ compensation		1,894		1,090
Enterprise zone and other credits		8,579		10,442
Net operating losses		5		1,814
Fixed assets		4,643		2,955
ROU assets		53,875		57,931
Other		6,349		4,698
Total deferred tax assets		75,878		83,849
Valuation allowance		(6,127)		(5,993)
Net deferred tax assets		69,751		77,856
Deferred liabilities:
Goodwill		(6,218)		(6,060)
Trademark		(16,773)		(16,745)
Prepaid expense		(720)		(791)
ROU liabilities		(48,005)		(52,056)
Other		(96)		(167)
Deferred tax liabilities		(71,812)		(75,819)
Net deferred tax (liability) asset	$	(2,061)	$	2,037

The net deferred tax asset amounts above as of December 30, 2020 and December 25, 2019 have been classified in the accompanying consolidated balance sheets as noncurrent assets and are as follows (in thousands):

	December 30,		December 25,
	2020		2019
Noncurrent:
Assets (liabilities) - state	$	3,166	$	3,709
Assets (liabilities) - federal		(5,227)		(1,672)
Net deferred tax (liability) asset	$	(2,061)	$	2,037

As of December 30, 2020 and December 25, 2019, the Company had no accrual for unrecognized tax benefits. Consequently, no interest or penalties have been accrued by the Company. The Company believes that no significant changes to the amount of unrecognized tax benefits will occur within the next twelve months. The Company is subject to taxation in the United States and in various state jurisdictions.

The Company is no longer subject to U.S. examination for years before 2017 by the federal taxing authority, and for years before 2016 by state taxing authorities.