Income Taxes

12 Months Ended

Aug. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

4. Income Taxes

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

Year ended	2024		2023		2022
Current:
Federal	$	30,932	$	7,269	$	7,655
Foreign		1,231		2,519		1,839
State		6,007		2,695		3,701
Total current	$	38,170	$	12,483	$	13,195
Deferred:
Federal	$	4,027	$	19,227	$	13,883
Foreign		1,269		568		180
State		439		2,885		3,663
Total deferred	$	5,735	$	22,680	$	17,726
Total provision for income taxes	$	43,905	$	35,163	$	30,921

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	2024			2023			2022
Income taxes at the statutory federal income tax rate		21.0	%		21.0	%		21.0	%
State income taxes		3.6			3.8			4.7
Adjustments to tax reserve		(0.5	)		0.8			(2.1	)
Other		(0.9	)		(0.3	)		(0.6	)
Effective income tax rate		23.2	%		25.3	%		23.0	%

The decrease in the effective tax rate for fiscal 2024 as compared to the corresponding period in the prior fiscal year was due primarily to favorable adjustments to our tax reserves during the current period and the remeasurement of U.S. net deferred tax liabilities because of legislative changes enacted during the current period impacting the Company’s state tax rate.

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

	August 31, 2024		August 26, 2023
Deferred tax assets:
Payroll and benefit related	$	16,009	$	15,284
Insurance related		14,067		14,347
Environmental		7,807		7,542
Accrued expenses		8,169		7,847
Operating lease liabilities		17,083		16,162
Research and development		6,243		3,628
Other		12,884		11,916
Total deferred tax assets	$	82,262	$	76,726
Deferred tax liabilities:
Payroll and benefit related	$	24,655	$	22,230
Tax in excess of book depreciation		59,113		53,597
Purchased intangible assets		48,908		43,994
Rental merchandise in service		59,692		62,562
Operating lease right-of-use assets		16,575		15,600
Other		320		488
Total deferred tax liabilities		209,263		198,471
Net deferred tax liability	$	127,001	$	121,745

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 31, 2024, 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.

In October 2021, the Organization for Economic Co-operation and Development (“OECD”) introduced an inclusive framework to address tax challenges arising from the digitalization of the economy through a two-pillar solution. One of the components of the solution is the implementation of a global minimum corporate tax rate of 15% for large multinational corporations (“Pillar Two”). The OECD continues to release additional guidance on the two-pillar solution with implementation to begin in 2024 while reporting of the tax applicable will not occur until 2026. Based on currently enacted guidelines, the Company does not expect Pillar Two to have a material impact upon its tax expense, cash taxes, and effective tax rate.

Uncertain tax positions

As of August 31, 2024 and August 26, 2023, there was $4.6 million and $7.8 million, respectively, of unrecognized tax benefits, of which $4.5 million and $7.1 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 31, 2024 and August 26, 2023, the Company had accrued a nominal amount in interest and penalties, in its long-term accrued liabilities. For fiscal 2024, 2023 and 2022, 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 are as follows (in thousands):

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
Additions based on tax positions related to the current year		1,069
Additions for tax positions of prior years		142
Reduction for tax positions of prior years		(4,257	)
Statute expirations		(67	)
Balance at August 31, 2024	$	4,638

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 2019 and 2016, respectively. With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods prior to fiscal 2020. 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.