Income Taxes

12 Months Ended

Jan. 02, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense consisted of the following (in thousands):

	2020		2019		2018
Current:
Federal	$	29,762	$	12,299	$	12,483
State	6,528		3,293		2,871
	36,290		15,592		15,354
Deferred:
Federal	584		2,591		708
State	(91)		480		920
	493		3,071		1,628
Income tax expense	$	36,783	$	18,663	$	16,982

The following table provides a reconciliation between the statutory federal income tax rate and our effective income tax rate:

	2020		2019		2018
Statutory federal income tax	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	2.4		3.6		3.3
Stock-based compensation	(2.4)		(4.3)		(1.1)
R&D tax credits	(1.4)		(2.2)		(2.0)
Non-deductible compensation	1.0		—		—
Changes in unrecognized tax benefits	0.3		(0.5)		1.2
Tax Cuts and Jobs Act effects	—		—		(3.9)
Other	—		1.0		1.1
Effective income tax rate	20.9	%	18.6	%	19.6	%

We file income tax returns with the U.S. federal government and various state jurisdictions. In the normal course of business, we are subject to examination by federal and state taxing authorities. We are no longer subject to federal income tax examinations for years prior to 2017 or state income tax examinations prior to 2016.

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted. The TCJA reduced the statutory federal tax rate from 35% to 21% starting in 2018. In addition, there were various other tax law changes that impacted us. In connection with the reduction of the federal tax rate, we recognized a provisional tax benefit of $1.7 million for the year ended December 30, 2017. This provisional tax benefit was related to the re-measurement of U.S. deferred tax assets and liabilities using a federal tax rate of 21%, which, under the TCJA, is expected to be in place when such deferred assets and liabilities reverse in future periods. During 2018, we updated our provisional tax benefit based on new information, including a tax planning analysis, and recorded an additional $2.9 million tax benefit.

Deferred Income Taxes

The tax effects of temporary differences that give rise to deferred income taxes were as follows (in thousands):

	2020		2019
Deferred tax assets:
Stock-based compensation	$	7,518	$	8,342
Operating lease liabilities	86,692		90,059
Warranty and returns liabilities	8,496		7,215
Net operating loss carryforwards and credits	2,027		1,987
Compensation and benefits	6,045		4,698
Other	7,440		3,953
Total gross deferred tax assets	118,218		116,254
Valuation allowance	(615)		(615)
Total gross deferred tax assets after valuation allowance	117,603		115,639
Deferred tax liabilities:
Property and equipment	31,881		30,274
Operating lease right-of-use assets	78,824		82,340
Deferred revenue	4,987		3,859
Other	2,153		2,974
Total gross deferred tax liabilities	117,845		119,447
Net deferred tax liabilities	$	(242)	$	(3,808)

At January 2, 2021, we had net operating loss carryforwards for federal purposes of $0.6 million, which will expire between 2025 and 2027.

We evaluate our deferred income taxes quarterly to determine if valuation allowances are required. As part of this evaluation, we assess whether valuation allowances should be established for any deferred tax assets that are not considered more likely than not to be realized, using all available evidence, both positive and negative. This assessment considers, among other matters, the nature, frequency, and severity of historical losses, forecasts of future profitability, taxable income in available carryback periods and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified. We have provided a $0.6 million valuation allowance resulting primarily from our inability to utilize certain foreign net operating losses, and federal net operating losses associated with our 2015 acquisition of BAM Labs, Inc.

Unrecognized Tax Benefits

Reconciliations of the beginning and ending amounts of unrecognized tax benefits were as follows (in thousands):

	Federal and State Tax
	2020		2019		2018
Beginning balance	$	3,337	$	3,866	$	2,839
Increases related to current-year tax positions	860		638		778
Increases related to prior-year tax positions	27		134		595
Decreases related to prior-year tax positions	—		(363)		—
Lapse of statute of limitations	(312)		(663)		(333)
Settlements with taxing authorities	—		(275)		(13)
Ending balance	$	3,912	$	3,337	$	3,866

At both January 2, 2021 and December 28, 2019, we had $3 million of unrecognized tax benefits, which if recognized, would affect our effective tax rate. The amount of unrecognized tax benefits is not expected to change materially within the next 12 months.