Income Taxes

12 Months Ended

Dec. 28, 2019

Income tax expense (benefit) for 2019, 2018 and 2017 consists of the following:



	For the Years Ended
(In thousands)	2019		2018			2017

Current:
Federal	$	45,575	$	89,551		$	37,708
State	13,429		24,804			4,878
Foreign	14,929		22,009			10,156
Total current expense	73,933		136,364			52,742
Deferred:
Federal	30,353		31,129			13,676
State	11,747		8,144			23,278
Foreign	9,025		(4,845		)	10,455
Total deferred expense	51,125		34,428			47,409

Total income tax expense	$	125,058	$	170,792		$	100,151

Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that give rise to significant portions of deferred income taxes at the end of 2019 and 2018 relate to the following:



(In thousands)	2019			2018

Deferred tax assets:
Accrued expenses	$	31,995		$	31,273
Tax credits and separate return net operating losses	19,186			22,826
Share-based compensation	52,643			60,901
Lease liability	29,939			—
Other	12,701			14,951
Gross deferred tax assets	146,464			129,951
Less: Valuation Allowance	—			(1,404		)
Total deferred tax assets	146,464			128,547

Deferred tax liabilities:
Software development costs	(247,217		)	(229,624		)
Property and equipment	(171,267		)	(131,516		)
Prepaid expenses	(39,311		)	(39,154		)
Contract and service revenues and costs	(12,112		)	(35,933		)
Lease right-of-use assets	(28,100		)	—
Other	(10,549		)	(6,199		)
Total deferred tax liabilities	(508,556		)	(442,426		)

Net deferred tax liability	$	(362,092	)	$	(313,879	)

At the end of 2019, we had net operating loss carry-forwards from foreign jurisdictions of $25 million that are available to offset future taxable income with no expiration. In addition, we had a state income tax credit carry-forward of $11 million available to offset income tax liabilities through December 31, 2030. We expect to fully utilize the net operating loss and tax credit carry-forwards in future periods.

At the end of 2019, we had not provided tax on the cumulative undistributed earnings of certain foreign subsidiaries of approximately $80 million, because it is our intention to reinvest these earnings indefinitely. The unrecognized deferred tax liability relating to these earnings is approximately $17 million.

The effective income tax rates for 2019, 2018, and 2017 were 19%, 21%, and 10%, respectively. These effective rates differ from the U.S. federal statutory rate of 21% for 2019 and 2018 and 35% for 2017 as follows:



	For the Years Ended
(In thousands)	2019			2018			2017

Tax expense at statutory rates	$	137,447		$	168,179		$	338,495
State income tax, net of federal benefit	18,561			25,321			22,214
Tax credits	(22,750		)	(19,737		)	(17,727		)
Foreign rate differential	(6,328		)	(4,851		)	(26,379		)
Share-based compensation	(8,090		)	(1,696		)	(62,501		)
Change in U.S. tax rate	—			—			(170,999		)
Deemed mandatory repatriation	—			—			25,114
Permanent differences	3,278			6,224			(10,700		)
Other, net	2,940			(2,648		)	2,634

Total income tax expense	$	125,058		$	170,792		$	100,151

H.R. 1, An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 ("U.S. Tax Reform"), was enacted on December 22, 2017. U.S. Tax reform provides for, among other things, the reduction of the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018. The impact of U.S. Tax Reform on our 2017 tax rate includes the impact of the revaluation of our net deferred tax liability to the lower enacted tax rate, and the impact of mandatory deemed repatriation. U.S. Tax Reform impacts our 2018 and 2019 tax rates through the reduced federal statutory tax rate, partially offset by the repeal of the permanent domestic production deduction, increases to permanently nondeductible expenses, as well as a new global intangible low-taxed income ("GILTI") inclusion. We have elected to account for GILTI Tax as incurred, and therefore have not provided any deferred tax impacts of GILTI in our consolidated financial statements.

A reconciliation of the beginning and ending amount of unrecognized tax benefit is presented below:



(In thousands)	2019			2018			2017

Unrecognized tax benefit - beginning balance	$	18,688		$	15,287		$	9,769
Gross decreases - tax positions in prior periods	(2,383		)	—			(1,734		)
Gross increases - tax positions in prior periods	1,220			1,591			7,252
Gross increases - tax positions in current year	1,607			2,370			—
Settlements	—			(541		)	—
Currency translation	(7		)	(19		)	—

Unrecognized tax benefit - ending balance	$	19,125		$	18,688		$	15,287

If recognized, $12 million of the unrecognized tax benefit will favorably impact our effective tax rate. It is reasonably possible that our unrecognized tax benefits may decrease by up to $15 million within the next twelve months. Our federal returns have been examined by the Internal Revenue Service through 2016. Our federal returns are open for examination for 2017 and thereafter. We have various state and foreign returns under examination.

The ending amounts of accrued interest and penalties related to unrecognized tax benefits were $4 million in 2019 and $3 million in 2018. We classify interest and penalties as income tax expense in our consolidated statement of operations, and our income tax expense for 2019 and 2018 each included $1 million of interest and penalties.

The foreign portion of our earnings before income taxes was $109 million, $89 million, and $126 million in 2019, 2018, and 2017 respectively, and the remaining portion was domestic.