Income Taxes

6 Months Ended

Jun. 28, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

In the three months ended June 28, 2020, our income tax provision of $3.1 million on a profit before income taxes and equity in earnings of unconsolidated investees of $22.4 million was primarily due to projected tax expense in foreign jurisdictions that are profitable. Our income tax provision of $6.1 million in the three months ended June 30, 2019 on a profit before income taxes and equity in earnings of unconsolidated investees of $118.1 million was primarily due to tax expense in foreign jurisdictions that were profitable.

In the six months ended June 28, 2020, our income tax provision of $4.9 million on a profit before income taxes and equity in earnings of unconsolidated investees of $21.8 million was primarily due to projected tax expense in foreign jurisdictions that are profitable, offset by a tax benefit related to a release of tax reserves in foreign jurisdictions due to a lapse of statute of limitations. Our income tax provision of $11.9 million in the six months ended June 30, 2019 on a profit before income taxes and equity in earnings of unconsolidated investees of $17.7 million was primarily due to the projected tax expense in foreign jurisdictions that were profitable, and a net change in valuation allowance from a foreign jurisdiction.

In the three and six months ended June 28, 2020, in accordance with FASB guidance for interim reporting of income tax, we have computed our provision for income taxes based on a projected annual effective tax rate while excluding loss jurisdictions which cannot be benefited. Our projected effective tax rate is based on forecasted annualized results which may fluctuate significantly in future periods, in particular due to the uncertainty in our annual forecasts resulting from the unpredictable duration and severity of the COVID-19 pandemic on our operating results.

Total liabilities associated with uncertain tax positions were $19.7 million and $20.1 million as of June 28, 2020 and December 29, 2019, respectively. The decrease of $0.4 million was primarily related to the release of tax reserves in various foreign jurisdictions due to lapse of statute of limitations.

In June 2019, the U.S. Court of Appeals for the Ninth Circuit overturned the 2015 U.S. tax court decision in Altera Co v. Commissioner, regarding the inclusion of stock-based compensation costs under cost sharing agreements. SunPower previously quantified and recorded the impact of including such compensation costs, as described in the Ninth Circuit decision, of $5.8 million in the fourth quarter of fiscal 2019, as a reduction to deferred tax asset, fully offset by a reduction to valuation allowance of the same amount, without any income tax expense impact. We will reevaluate the deferred tax disclosure at the end of the fiscal year 2020.

On June 29, 2020, California Assembly Bill ("AB 85") was signed. AB 85 suspends the use of California net operating loss deductions and limits maximum business incentive tax credit utilization to $5.0 million annually starting with tax years beginning on or after January 1, 2020 through December 31, 2022. As of June 28, 2020, we continue to forecast a U.S. taxable loss for the year, without the taxable gain from the spin-off (the “Spin-Off”) Maxeon Solar into a separate publicly traded company, because we consider the transaction as a discrete event that has not occurred as of June 28, 2020. Accordingly, we did not recognize any tax related to AB 85 since the Spin-Off has not occurred as of the second quarter of fiscal 2020. The financing requirements for the Spin-Off were met in July 2020, and we expect to consummate the Spin-Off in the third quarter of fiscal 2020. The estimated additional California income taxes payable following the Spin-Off transaction is completed is approximately $10 million to $15 million.