Income Taxes

12 Months Ended

Aug. 26, 2023

Income Tax Disclosure [Abstract]

Income Taxes

4. Income Taxes

The provision for income taxes consists of the following (in thousands):

Year ended	2023		2022		2021
Current:
Federal	$	7,269	$	7,655	$	35,267
Foreign		2,519		1,839		1,714
State		2,695		3,701		9,873
Total current	$	12,483	$	13,195	$	46,854
Deferred:
Federal	$	19,227	$	13,883	$	(1,421	)
Foreign		568		180		848
State		2,885		3,663		(521	)
Total deferred	$	22,680	$	17,726	$	(1,094	)
Total	$	35,163	$	30,921	$	45,760

The following table reconciles the provision for income taxes using the statutory federal income tax rate to the actual provision for income taxes:

Year ended	2023			2022			2021
Income taxes at the statutory federal income tax rate		21.0	%		21.0	%		21.0	%
State income taxes		3.8			4.7			4.2
Adjustments to tax reserve		0.8			(2.1	)		(0.3	)
Other		(0.3	)		(0.6	)		(1.7	)
Effective income tax rate		25.3	%		23.0	%		23.2	%

The increase in the effective tax rate for fiscal 2023 as compared to prior fiscal year was due primarily from the release of certain tax reserves in the prior year comparable period which did not recur in fiscal 2023.

The components of deferred income taxes included on the Consolidated Balance Sheets are as follows (in thousands):

	August 26, 2023		August 27, 2022
Deferred tax assets:
Payroll and benefit related	$	15,284	$	14,923
Insurance related		14,347		15,035
Environmental		7,542		8,212
Accrued expenses		7,847		8,170
Operating lease liabilities		16,162		11,471
Research and development		3,628		—
Other		11,916		9,841
Total deferred tax assets	$	76,726	$	67,652
Deferred tax liabilities:
Payroll and benefit related	$	22,230	$	20,588
Tax in excess of book depreciation		53,597		40,016
Purchased intangible assets		43,994		39,747
Rental merchandise in service		62,562		55,287
Operating lease right-of-use assets		15,600		11,111
Other		488		232
Total deferred tax liabilities		198,471		166,981
Net deferred tax liability	$	121,745	$	99,329

The Company regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will be realized.

Foreign tax effect

As of August 26, 2023, unremitted foreign earnings, have been retained by the Company’s foreign subsidiaries for indefinite reinvestment. If the Company were to repatriate those earnings, in the form of dividends or otherwise, the Company could be subject to immaterial withholding taxes payable to the various foreign countries.

Uncertain tax positions

As of August 26, 2023 and August 27, 2022, there was $7.8 million and $6.4 million, respectively, of unrecognized tax benefits, of which $7.1 million and $5.7 million, respectively, would favorably impact the Company’s effective tax rate, if recognized. The Company recognized interest and penalties related to uncertain tax positions as a component of income tax expense which is consistent with the recognition of these items in prior reporting periods. As of August 26, 2023 and August 27, 2022, the Company had accrued a nominal amount in interest and penalties, in its long-term accrued liabilities. For fiscal 2023, 2022 and 2021, the Company recognized a nominal expense in its Consolidated Statements of Income related to interest and penalties.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at August 28, 2021	$	9,321
Additions based on tax positions related to the current year		489
Additions for tax positions of prior years		107
Reduction for tax positions of prior years		(3,013	)
Statute expirations		(487	)
Balance at August 27, 2022		6,417
Additions based on tax positions related to the current year		1,042
Additions for tax positions of prior years		840
Reduction for tax positions of prior years		(219	)
Statute expirations		(329	)
Balance at August 26, 2023	$	7,751

The Company has a significant portion of its operations in the U.S. and Canada. It is required to file federal income tax returns as well as state income tax returns in a majority of the U.S. states and also in a number of Canadian provinces. At times, the Company is subject to audits in these jurisdictions, which typically are complex and can require several years to resolve. The final resolution of any such tax audits could result in either a reduction in the Company’s accruals or an increase in its income tax provision, both of which could have a material impact on the consolidated results of operations in any given period.

All U.S. and Canadian federal income tax statutes have lapsed for filings up to and including fiscal years 2017 and 2015, respectively. With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods prior to fiscal 2018. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly in the next 12 months.