INCOME TAXES

12 Months Ended

Dec. 28, 2022

Income Tax Disclosure [Abstract]

Income Taxes

9. INCOME TAXES

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

	December 28,		December 29,		December 30,
For the Years Ended	2022		2021		2020
Current income taxes:
Federal	$	2,366	$	7,163	$	520
State		1,112		2,158		1,123
Total current		3,478		9,321		1,643
Deferred income taxes:
Federal		2,958		93		3,350
State		1,642		918		658
Total deferred		4,600		1,011		4,008
Tax provision for income taxes	$	8,078	$	10,332	$	5,651

The provision for income taxes differs from the amount computed by applying the federal income tax rate of 21.0% for fiscal 2022, 2021 and 2020 as follows:

	December 28,		December 29,		December 30,
For the Years Ended	2022		2021		2020
Statutory federal income tax rate applied to earnings before income taxes and extraordinary items	21.0	%	21.0	%	21.0	%
State income tax expense (net of federal benefit)	7.7		5.9		4.3
Change in valuation allowance	—		0.1		0.4
TRA (income) expense	(0.3)		—		—
162(m)	0.5		0.8		0.2
WOTC Credit	(0.9)		(0.5)		(0.9)
Stock option exercises	0.3		(1.4)		(6.6)
Other	(0.3)		0.3		0.4
Total	28.0	%	26.2	%	18.8	%

As of December 28, 2022, the Company had no federal and less than $0.1 million state NOL carryforwards. These State NOLs expire beginning 2029. The Company also has state enterprise zone credits of approximately $9.2 million, which expire in 2023. The utilization of NOL carryforwards and state enterprise zone credits 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 except from certain state credits will be realized. In both fiscal 2021 and 2020, the Company recorded a valuation allowance of approximately $0.1 million against its deferred tax asset resulting from certain tax credits that may not be realizable prior to the time the credits expire. In fiscal 2022, the Company recorded an additional $0.5 million to the valuation allowance. As of December 28, 2022, the total valuation allowance was $6.7 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 $0.4 million of income in fiscal 2022 as a result of the amortization of interest expense related

to the total expected TRA payments and changes in estimates for actual tax returns filed and future forecasted taxable income, less than $0.1 million of expense in fiscal 2021 as a result of the amortization of interest expense related to the total expected TRA payments and changes in estimates for actual tax returns filed and future forecasted taxable income and $0.1 million of expense in fiscal 2020 as a result of changes to future forecasted results and deduction on 2018 legal settlement accrual. In fiscal 2022, 2021 and 2020, the Company paid $0.4 million, $1.7 million and $5.2 million, respectively, to its pre-IPO stockholders under the TRA.

As of December 28, 2022 and December 29, 2021, the deferred tax assets related to California Enterprise Zone credits, net of valuation allowances are $0.5 million and $1.3 million, respectively.

The Company’s deferred tax assets and liabilities as of December 28, 2022 and December 29, 2021 are summarized below.

	December 28,		December 29,
	2022		2021
Deferred assets:
Capital leases	$	55	$	60
Accrued vacation		508		503
Accrued workers’ compensation		2,201		2,616
Enterprise zone and other credits		7,258		7,524
Net operating losses		5		5
Fixed assets		2,392		4,393
ROU assets		50,112		51,864
Other		4,397		5,694
Total deferred tax assets		66,928		72,659
Valuation allowance		(6,727)		(6,181)
Net deferred tax assets		60,201		66,478
Deferred liabilities:
Goodwill		(6,420)		(6,349)
Trademark		(16,721)		(16,727)
Prepaid expense		(595)		(498)
ROU liabilities		(44,737)		(46,484)
Other		267		361
Deferred tax liabilities		(68,206)		(69,697)
Net deferred tax liability	$	(8,005)	$	(3,219)

The net deferred tax asset amounts above as of December 28, 2022 and December 29, 2021 have been classified in the accompanying consolidated balance sheets as noncurrent assets and are as follows (in thousands):

	December 28,		December 29,
	2022		2021
Noncurrent:
Assets - state	$	512	$	2,245
Liabilities - federal		(8,517)		(5,464)
Net deferred tax liability	$	(8,005)	$	(3,219)

As of December 28, 2022 and December 29, 2021, 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 2019 by the federal taxing authority, and for years before 2018 by state taxing authorities.