Note 13 – Taxes on Income

The income tax provision for continuing operations is made up of the following components:

	December 31,		January 2,			January 3,
	2016		2016			2015
(In thousands)	(52 Weeks)		(52 Weeks)			(53 Weeks)
Current income tax expense:
Federal	$	22,936	$	31,437		$	27,015
State		3,210		3,144			777
Total current income tax expense		26,146		34,581			27,792
Deferred income tax expense (benefit):
Federal		6,509		3,255			3,362
State		252		(743	)		175
Total deferred income tax expense		6,761		2,512			3,537
Total income tax expense	$	32,907	$	37,093		$	31,329

A reconciliation of the statutory federal rate to the effective rate is as follows:

	December 31,				January 2,				January 3,
	2016				2016				2015
	(52 Weeks)				(52 Weeks)				(53 Weeks)
Federal statutory income tax rate		35.0		%		35.0		%		35.0		%
State taxes, net of federal income tax benefit		2.5				1.6				2.9
Charitable product donations		(0.5	)			(0.3	)			(0.4	)
Changes in tax contingencies		—				(0.1	)			(2.7	)
Domestic production activities deduction		(0.3	)			(0.2	)			(0.2	)
Non-deductible expenses		0.5				0.4				0.9
Other, net		(0.6	)			0.6				(0.9	)
Effective income tax rate		36.6		%		37.0		%		34.6		%

Deferred tax assets and liabilities resulting from temporary differences as of December 31, 2016 and January 2, 2016 are as follows:

	December 31,		January 2,
(In thousands)	2016		2016
Deferred tax assets:
Employee benefits	$	30,626	$	29,218
Accrued workers' compensation		2,624		2,712
Allowance for doubtful accounts		2,945		3,341
Intangible assets		2,060		326
Restructuring		6,087		732
Deferred revenue		2,990		2,047
Accrued rent		3,555		3,884
Accrued insurance		1,279		866
All other		4,417		6,804
Total deferred tax assets		56,583		49,930

Deferred tax liabilities:
Property and equipment		52,401		43,201
Inventory		46,332		48,120
Goodwill		79,904		62,005
Leases (a)		—		12,279
All other		1,189		925
Total deferred tax liabilities		179,826		166,530
Net deferred tax liability	$	123,243	$	116,600

(a)

Beginning in fiscal 2016, lease related items are classified together with the associated property and equipment or intangible asset items.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	December 31,			January 2,
(In thousands)	2016			2016
Balance at beginning of year	$	2,211		$	2,179
Gross increases - tax positions taken in prior years		184			186
Gross decreases - tax positions taken in prior years		(2	)		(105	)
Gross increases - tax positions taken in current year		718			660
Lapse of statute of limitations		(742	)		(709	)
Balance at end of year	$	2,369		$	2,211

Unrecognized tax benefits of $0.9 million are set to expire prior to December 30, 2017. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The amount of unrecognized tax benefits, including interest and penalties, that would reduce the Company’s effective income tax rate if recognized in future periods was $1.3 million as of December 31, 2016.

SpartanNash or its subsidiaries file income tax returns with federal, state and local tax authorities within the United States. With few exceptions, SpartanNash is no longer subject to U.S. federal, state or local examinations by tax authorities for fiscal years before March 31, 2012. Income tax returns related to the former Nash-Finch Company, with few exceptions, are no longer subject to U.S. federal, state or local examinations by tax authorities for the fiscal year ended December 29, 2012 and earlier.