Income Taxes

12 Months Ended

Dec. 29, 2018

Income Taxes

(5) Income Taxes

The provisions for income taxes consisted of the following (in thousands):

	Fiscal Years
	2018		2017			2016
Current:
Federal	$	60,650	$	72,025		$	68,548
State		9,410		8,312			6,668
Foreign		993		500			563
Total current	$	71,053	$	80,837		$	75,779
Deferred:
Federal	$	1,730	$	(17,110	)	$	6,104
State		385		79			224
Total deferred	$	2,115	$	(17,031	)	$	6,328
Income taxes	$	73,168	$	63,806		$	82,107

On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The legislation significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. With respect to the change in corporate tax rates, the Tax Reform Act permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. In connection with this reduction in the U.S. corporate income tax rate, the Company revalued its ending net deferred tax liabilities at December 30, 2017 resulting in a provisional $20,430,000 tax benefit in the Company’s consolidated statement of income for the year ended December 30, 2017. With respect to the repatriation tax on deemed repatriated earnings of foreign subsidiaries, the Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Company had an estimated $17,981,000 of undistributed foreign E&P at the Company’s Canadian subsidiary, Landstar Canada, Inc., subject to the deemed mandatory repatriation and, accordingly, recognized a provisional $900,000 of income tax expense in the Company’s consolidated statement of income for the year ended December 30, 2017. After the utilization of existing tax credits, the Company paid U.S. federal cash taxes of approximately $500,000 on the deemed mandatory repatriation in 2018.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 30, 2017. The accounting was complete when the 2017 U.S. corporate income tax return was filed in 2018 and no significant adjustments were made to the previously recognized provisional amounts.

Also during fiscal year 2017, the Company adopted ASU 2016-09. As required by ASU 2016-09, the Company recognized $2,060,000 and $1,299,000 of excess tax benefits on stock-based awards in its provision for income taxes in the 2018 and 2017 fiscal years, respectively.

Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities consisted of the following (in thousands):

	Dec. 29, 2018		Dec. 30, 2017
Deferred tax assets:
Receivable valuations	$	3,414	$	3,244
Share-based payments		5,286		2,182
Self-insured claims		4,201		4,688
Other		3,843		3,666
Total deferred tax assets	$	16,744	$	13,780
Deferred tax liabilities:
Operating property	$	48,553	$	43,105
Goodwill		3,812		3,773
Other		1,608		2,016
Total deferred tax liabilities	$	53,973	$	48,894
Net deferred tax liability	$	37,229	$	35,114

The following table summarizes the differences between income taxes calculated at the federal income tax rates of 21% for 2018 and 35% for 2017 and 2016, respectively, on income before income taxes and the provisions for income taxes (in thousands):

	Fiscal Years
	2018			2017			2016
Income taxes at federal income tax rate	$	68,960		$	84,281		$	76,810
State income taxes, net of federal income tax benefit		7,713			5,417			4,505
Non-deductible executive compensation		1,012			—			—
Meals and entertainment exclusion		719			1,021			958
Share-based payments		(2,138	)		(1,549	)		(239	)
Section 199 deductions and R&D credits		(3,309	)		(5,546	)		(250	)
Tax Reform Act		—			(19,530	)		—
Other, net		211			(288	)		323
Income taxes	$	73,168		$	63,806		$	82,107

The Company files a consolidated U.S. federal income tax return. The Company or its subsidiaries file state tax returns in the majority of the U.S. state tax jurisdictions. With few exceptions, the Company and its subsidiaries are no longer subject to U.S. federal or state income tax examinations by tax authorities for 2014 and prior years. The Company’s wholly owned Canadian subsidiary, Landstar Canada, Inc., is subject to Canadian income and other taxes. The Company’s wholly owned Mexican subsidiary, Landstar Holdings, S. de R.L.C.V. and approximately 79% owned subsidiaries, Landstar Metro, S.A.P.I. de C.V. and Landstar Metro Servicios S.A.P.I. de C.V. are subject to Mexican and U.S. income and other taxes.

As of December 29, 2018 and December 30, 2017, the Company had $2,403,000 and $3,670,000, respectively, of net unrecognized tax benefits representing the provision for the uncertainty of certain tax positions plus a component of interest and penalties. Estimated interest and penalties on the provision for the uncertainty of certain tax positions is included in income tax expense. At December 29, 2018 and December 30, 2017 there was $653,000 and $627,000, respectively, accrued for estimated interest and penalties related to the uncertainty of certain tax positions. The Company does not currently anticipate any significant increase or decrease to the unrecognized tax benefit during fiscal year 2019.

The following table summarizes the rollforward of the total amounts of gross unrecognized tax benefits for fiscal years 2018 and 2017 (in thousands):

	Fiscal Years
	2018			2017
Gross unrecognized tax benefits – beginning of the year	$	4,812		$	2,635
Gross increases related to current year tax positions		714			645
Gross increases related to prior year tax positions		370			2,189
Gross decreases related to prior year tax positions		(1,575	)		(75	)
Settlements		(159	)		(100	)
Lapse of statute of limitations		(643	)		(482	)
Gross unrecognized tax benefits – end of the year	$	3,519		$	4,812

Landstar paid income taxes of $75,124,000 in fiscal year 2018, $86,607,000 in fiscal year 2017 and $69,067,000 in fiscal year 2016.