Income Taxes

12 Months Ended

Dec. 29, 2022

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The components of the net deferred tax liability are as follows:

	December 29, 2022		December 30, 2021
Deferred tax assets
Accrued employee benefits	$	14,133	$	17,669
Operating lease liabilities	54,767		59,622
Gift card liabilities	6,575		7,318
Net operating loss, disallowed interest & tax credit carryforwards	28,273		24,166
Other	3,791		6,876
Total	107,539		115,651
Less valuation allowance	(12,371)		(2,415)
Deferred tax assets	95,168		113,236
Deferred tax liabilities
Depreciation and amortization	(70,849)		(73,898)
Operating lease assets	(50,886)		(55,489)
Deferred tax liabilities	(121,735)		(129,387)
Net deferred tax liability	$	(26,567)	$	(16,151)
Amounts recognized in the consolidated balance sheets consist of:
Deferred income taxes - other assets	$	—	$	10,032
Deferred income taxes - liabilities	(26,567)		(26,183)
Net amount recognized	$	(26,567)	$	(16,151)

As of December 29, 2022, the Company has a federal net operating loss carryforward of $19,656 and federal tax credit carryforwards of $4,538. As of December 30, 2021, the Company had a federal net operating loss carryforward of $26,003 and federal tax credit carryforwards of $3,463. As of December 29, 2022, the Company has state net operating loss carryforwards of $238,682, which will expire primarily in the next 12 to 20 years. As of December 30, 2021, the Company had state net operating loss carryforwards of $237,019. In fiscal 2021, the Company established a valuation allowance of $2,415 for a portion of its state net operating loss carryforwards that are not more likely than not to be realized. In fiscal 2022, the Company increased the valuation allowance by $9,956 to $12,371. The amount of the state net operating loss carryforwards considered realizable could be adjusted if, among other factors, estimates of future taxable income during the carryforward periods are reduced or increased.

Income tax expense (benefit) consists of the following:

	Year Ended
	December 29, 2022		December 30, 2021		December 31, 2020
Current:
Federal	$	(452)	$	13	$	(32,626)
State	556		129		526
Deferred:
Federal	(3,222)		(12,629)		(24,751)
State	10,255		(3,214)		(14,085)
	$	7,137	$	(15,701)	$	(70,936)

The Company’s effective income tax rate, adjusted for earnings (losses) from noncontrolling interests, was (147.6)%, 26.6% and 36.2% for fiscal 2022, fiscal 2021 and fiscal 2020, respectively. The Company's effective income tax rate during fiscal 2022 was negatively impacted by a $9,956 increase in the valuation allowance for state net operating loss carryforwards, partially offset by a corresponding increase in the federal benefit on the valuation allowance of $2,598. Excluding the negative impact of the valuation allowance adjustment, the Company’s effect income tax rate during fiscal 2022 was 4.6%. The Company’s effective income tax rate during fiscal 2020 benefited from several accounting method changes and the March 27, 2020 signing of the CARES Act, one of the provisions of which allows the Company's 2019 and 2020 taxable losses to be carried back to prior fiscal years during which the federal income tax rate was 35.0%, compared to the current statutory federal income tax rate of 21.0%. During fiscal 2020, the Company recorded current tax benefits of $11,976 and deferred tax benefits of $8,095 related to the CARES Act and tax accounting changes. Excluding these favorable impacts, the company’s effective income tax rate for fiscal 2020 was 26.0%. The Company has not included the income tax expense or benefit related to the net earnings or loss attributable to noncontrolling interests in its income tax expense as the entity is considered a pass-through entity and, as such, the income tax expense or benefit is attributable to its owners.

The Company evaluated the provisions of the CARES Act. Among other things, the CARES Act included provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. After reviewing these provisions, the Company filed income tax refund claims of approximately $37,400 in fiscal 2020 and $24,200 in fiscal 2021, with the primary benefit derived from several accounting method changes and new rules for qualified improvement property expenditures and net operating loss carrybacks. The Company received $31,500 of the tax refunds in fiscal 2020, $7,800 in fiscal 2021 and $22,300 in fiscal 2022.

A reconciliation of the statutory federal tax rate to the effective tax rate on earnings attributable to The Marcus Corporation follows:

	Year Ended
	December 29, 2022		December 30, 2021		December 31, 2020
Statutory federal tax rate	21.0	%	21.0	%	21.0	%
Tax benefit from CARES Act and accounting method changes	—		—		10.3
State income taxes, net of federal income tax benefit	4.3		6.7		5.0
Tax credits, net of federal income tax benefit	22.9		1.6		0.2
Valuation allowance	(205.9)		(4.1)		—
Federal income tax benefit on state valuation allowance	53.7		—		—
Excess tax benefits on share-based compensation	(22.1)		(0.6)		(0.2)
Other compensation and benefits	(15.6)		(0.7)		—
Meals and entertainment	(4.1)		(0.4)		—
Other	(1.8)		3.1		(0.1)
	(147.6)	%	26.6	%	36.2	%

Net income taxes refunded in fiscal 2022, fiscal 2021 and fiscal 2020 were $21,935, $8,316 and $33,275, respectively. Net income taxes refunded in fiscal 2022, fiscal 2021 and fiscal 2020 included $22,300, $7,800 and $31,500, respectively, related to federal net operating loss carrybacks to prior years, as allowed under the provisions of the CARES Act.

The Company had no unrecognized tax benefits as of December 29, 2022, December 30, 2021 and December 31, 2020. The Company had no accrued interest or penalties at December 29, 2022 or December 30, 2021. The Company classifies interest and penalties relating to income taxes as income tax expense. For the year ended December 29, 2022, $683 of interest income was recognized in the consolidated statement of earnings (loss), compared to $60 of interest income for the year ended December 30, 2021 and $296 of interest income for the year ended December 31, 2020.

In the fourth quarter of 2021, the Company settled, with no significant change, an examination by the Internal Revenue Service of its fiscal 2019 and 2020 income tax returns. The examination included the previous five fiscal years, to the extent that net operating losses were carried back to those fiscal years under the CARES Act. With certain exceptions, the Company's state income tax returns are no longer subject to examination prior to fiscal 2018. At this time, the Company does not expect the results from any income tax audit or appeal to have a significant impact on the Company's financial statements.