INCOME TAXES

12 Months Ended

Jan. 01, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

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

	Fiscal Year Ended
	January 1, 2022		January 2, 2021		December 28, 2019
Domestic	$	262,182	$	201,919	$	65,469
Foreign	6,228		3,282		1,789
Income before income taxes	$	268,410	$	205,201	$	67,258

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

	Fiscal Year Ended
	January 1, 2022		January 2, 2021		December 28, 2019
Current tax expense:
U.S. federal	$	37,963	$	41,884	$	627
State	11,018		10,619		1,505
Foreign	1,726		829		526
Total current tax expense	50,707		53,332		2,658
Deferred tax expense (benefit):
U.S. federal	4,770		(3,332)		12,911
State	540		(538)		1,304
Foreign	(209)		(62)		(49)
Total deferred tax expense	5,101		(3,932)		14,166
Total income tax expense	$	55,808	$	49,400	$	16,824

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 1, 2022		January 2, 2021		December 28, 2019
Income taxes at the statutory rate	$	56,366	$	43,092	$	14,124
Increase (decrease) resulting from:
State income taxes, net of federal tax effect	8,562		7,816		2,989
Foreign-derived intangible income	(3,056)		(1,046)		(159)
Research and development tax credits	(630)		(580)		(2,157)
Tax expense (benefit) related to stock-based compensation	(7,259)		(611)		950
Other	1,825		729		1,077
Income tax expense	$	55,808	$	49,400	$	16,824

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

	Fiscal Year Ended
	January 1, 2022		January 2, 2021
Deferred tax assets:
Accrued liabilities	$	7,188	$	6,857
Allowances and other reserves	3,350		2,979
Inventory	4,990		5,012
Stock-based compensation	4,298		4,796
Operating lease liabilities	16,201		10,714
Other	3,225		2,360
Total deferred tax assets	$	39,252	$	32,718
Deferred tax liabilities:
Operating lease assets	$	(13,516)	$	(8,222)
Prepaid expenses	(1,602)		(644)
Property and equipment	(15,180)		(11,425)
Intangible assets	(18,180)		(15,843)
Other	(92)		(745)
Total deferred tax liabilities	(48,570)		(36,879)
Net deferred tax liabilities	$	(9,318)	$	(4,161)
Amounts included in the Consolidated Balance Sheets:
Deferred income taxes	$	1,602	$	1,062
Other liabilities	(10,920)		(5,223)
Net deferred income tax liabilities	$	(9,318)	$	(4,161)

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 Cuts and Jobs Act (“the Tax Act”) during 2017. 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. We believe it is not practicable to estimate the amount of additional taxes, which may be payable upon distribution of these earnings. At January 1, 2022, we had unremitted earnings of foreign subsidiaries of $17.0 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 1, 2022, 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 1, 2022		January 2, 2021
Balance, beginning of year	$	7,250	$	3,358
Gross increases related to current year tax positions	4,070		4,522
Gross decreases related to prior year tax positions	(100)		(65)
Lapse of statute of limitations	(107)		(565)
Balance, end of year	$	11,113	$	7,250

If our positions are sustained by the relevant taxing authorities, approximately $11.1 million (excluding interest and penalties) of uncertain tax position liabilities as of January 1, 2022 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 1, 2022, we had recognized a liability of $1.3 million for interest and penalties related to unrecognized tax benefits.

We file income tax returns in the United States and various state and foreign jurisdictions. The tax years 2018 through 2021 remain open to examination in the United States, and the tax years 2016 through 2021 remain open to examination in Texas. The tax years 2017 through 2021 remain open to examination in most other state and foreign jurisdictions.