INCOME TAXES

12 Months Ended

Jan. 02, 2021

The components of income before income taxes were as follows for the periods indicated (in thousands):


	Fiscal Year Ended
	January 2, 2021		December 28, 2019		December 29, 2018
Domestic	$	201,919	$	65,469	$	69,209
Foreign	3,282		1,789		406
Income before income taxes	$	205,201	$	67,258	$	69,615

The components of income tax expense were as follows for the periods indicated (in thousands):


	Fiscal Year Ended
	January 2, 2021		December 28, 2019		December 29, 2018
Current tax expense:
U.S. federal	$	41,884	$	627	$	7,190
State	10,619		1,505		2,316
Foreign	829		526		247
Total current tax expense	53,332		2,658		9,753
Deferred tax expense (benefit):
U.S. federal	(3,332)		12,911		3,298
State	(538)		1,304		(1,172)
Foreign	(62)		(49)		(27)
Total deferred tax expense	(3,932)		14,166		2,099
Total income tax expense	$	49,400	$	16,824	$	11,852

A reconciliation of income taxes computed at the federal statutory income tax rate of 21% to the effective income tax rate is as follows for the periods indicated (in thousands):


	Fiscal Year Ended
	January 2, 2021		December 28, 2019		December 29, 2018
Income taxes at the statutory rate	$	43,092	$	14,124	$	14,619
Increase (decrease) resulting from:
State income taxes, net of federal tax effect	7,816		2,989		2,030
Nondeductible expenses	63		203		248

Research and development tax credits	(580)		(2,157)		(578)

Tax expense (benefit) related to stock-based compensation	(611)		950		(2,396)

Nondeductible interest expense	—		—		4
Revaluation of deferred tax assets for state income taxes	2		(92)		(1,154)
Other	(382)		807		(921)
Income tax expense	$	49,400	$	16,824	$	11,852

Deferred tax assets and liabilities consisted of the following for the periods indicated (in thousands):


	Fiscal Year Ended
	January 2, 2021		December 28, 2019
Deferred tax assets:
Accrued liabilities	$	6,857	$	4,482
Allowances and other reserves	2,979		2,030
Inventory	5,012		1,929
Stock-based compensation	4,796		4,761
Operating lease liabilities	10,714		12,286

Deferred interest	—		1,703
Other	2,360		1,497
Total deferred tax assets	$	32,718	$	28,688
Deferred tax liabilities:
Operating lease assets	$	(8,222)	$	(9,528)
Prepaid expenses	(644)		(1,897)
Property and equipment	(11,425)		(10,971)
Intangible assets	(15,843)		(13,546)
Other	(745)		(744)
Total deferred tax liabilities	(36,879)		(36,686)
Net deferred tax liabilities	$	(4,161)	$	(7,998)
Amounts included in the Consolidated Balance Sheets:
Deferred income taxes	$	1,062	$	1,082
Other liabilities	(5,223)		(9,080)
Net deferred income tax liabilities	$	(4,161)	$	(7,998)

On December 22, 2017, U.S. federal legislation, commonly referred to as the Tax Cuts and Jobs act (the “Tax Act”) was signed into law, significantly reforming the U.S. Internal Revenue Code. The Tax Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and put into effect the migration from a “worldwide” system of taxation to a territorial system. During 2018, we finalized the accounting for the enactment of the Tax Act, with an immaterial adjustment to the amount recorded in the year of enactment.

We consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and, accordingly, no taxes have been recognized on such earnings except for the transition tax recognized as part of the Tax Act. We continue to evaluate our plans for reinvestment or repatriation of unremitted foreign earnings. If we determine that all or a portion of our foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes. At January 2, 2021, we had unremitted earnings of foreign subsidiaries of $6.9 million.

The Tax Act introduced new provisions for U.S. taxation of certain global intangible low-taxed income (“GILTI”). We elected to account for the tax on GILTI as a period cost and therefore have not recorded deferred taxes related to GILTI on our foreign subsidiaries.

As of January 2, 2021, we had Texas research and development tax credit carryforwards of approximately $1.9 million, which if not utilized, will expire beginning in 2037.

The following table summarizes the activity related to our unrecognized tax benefits for the periods indicated (excluding interest and penalties) (in thousands):


	Fiscal Year Ended
	January 2, 2021		December 28, 2019
Balance, beginning of year	$	3,358	$	2,381
Gross increases related to current year tax positions	4,522		987
Gross increases related to prior year tax positions	—		37
Gross decreases related to prior year tax positions	(65)		—
Lapse of statute of limitations	(565)		(47)
Balance, end of year	$	7,250	$	3,358

If our positions are sustained by the relevant taxing authorities, approximately $7.3 million (excluding interest and penalties) of uncertain tax position liabilities as of January 2, 2021 would favorably impact our effective tax rate in future periods. We do not anticipate that the balance of gross unrecognized tax benefits will change significantly during the next twelve months.

We include interest and penalties related to unrecognized tax benefits in our current provision for income taxes in the accompanying consolidated statements of operations. As of January 2, 2021, we had recognized a liability of $0.6 million for interest and penalties related to unrecognized tax benefits.

We file income tax returns in the United States and various state jurisdictions. The tax years 2017 through 2020 remain open to examination in the United States, and the tax years 2016 through 2020 remain open to examination in Texas and most other state jurisdictions. The 2017 through 2020 tax years remain open to examination in foreign jurisdictions.