Income Taxes

12 Months Ended

Jan. 01, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	2021		2020		2019
Current:
Federal	$	17,019	$	29,762	$	12,299
State	4,568		6,528		3,293
	21,587		36,290		15,592
Deferred:
Federal	10,954		584		2,591
State	1,004		(91)		480
	11,958		493		3,071
Income tax expense	$	33,545	$	36,783	$	18,663

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

	2021		2020		2019
Statutory federal income tax	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	3.0		2.4		3.6
Stock-based compensation	(6.3)		(2.4)		(4.3)
R&D tax credits	(1.4)		(1.4)		(2.2)
Non-deductible compensation	1.5		1.0		—
Changes in unrecognized tax benefits	(0.1)		0.3		(0.5)
Other	0.2		—		1.0
Effective income tax rate	17.9	%	20.9	%	18.6	%

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 2018 or state income tax examinations prior to 2017.

Deferred Income Taxes

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

	2021		2020
Deferred tax assets:
Stock-based compensation	$	8,037	$	7,518
Operating lease liabilities	102,292		86,692
Warranty and returns liabilities	7,459		8,496
Net operating loss carryforwards and credits	1,939		2,027
Compensation and benefits	8,206		6,045
Other	6,607		7,440
Total gross deferred tax assets	134,540		118,218
Valuation allowance	(615)		(615)
Total gross deferred tax assets after valuation allowance	133,925		117,603
Deferred tax liabilities:
Property and equipment	34,655		31,881
Operating lease right-of-use assets	92,778		78,824
Deferred revenue	5,460		4,987
Other	1,720		2,153
Total gross deferred tax liabilities	134,613		117,845
Net deferred tax liabilities	$	(688)	$	(242)

At January 1, 2022, we had net operating loss carryforwards for federal purposes of $0.5 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
	2021		2020		2019
Beginning balance	$	3,912	$	3,337	$	3,866
Increases related to current-year tax positions	831		860		638
Increases related to prior-year tax positions	4		27		134
Decreases related to prior-year tax positions	(33)		—		(363)
Lapse of statute of limitations	(845)		(312)		(663)
Settlements with taxing authorities	—		—		(275)
Ending balance	$	3,869	$	3,912	$	3,337

At both January 1, 2022 and January 2, 2021, we had $3.7 million and $3.6 million, respectively, 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.