Income Tax

12 Months Ended

Dec. 28, 2019

Note 13 – Income Tax

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

(In thousands)	2019			2018			2017
Current income tax expense (benefit):
Federal	$	(899	)	$	(1,607	)	$	366
State		817			1,107			528
Total current income tax expense (benefit)		(82	)		(500	)		894
Deferred income tax (benefit) expense:
Federal		126			8,370			(72,842	)
State		(2,386	)		(963	)		(7,079	)
Total deferred income tax (benefit) expense		(2,260	)		7,407			(79,921	)
Total income tax (benefit) expense	$	(2,342	)	$	6,907		$	(79,027	)

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

	2019				2018				2017
Federal statutory income tax rate		21.0		%		21.0		%		35.0		%
Stock compensation		7.2				0.7				1.0
Non-deductible expenses		0.8				0.6				(0.3	)
Domestic production activities deduction		—				—				0.1
Federal rate change effect on deferred taxes (a)		—				(1.2	)			19.7
Change in tax contingencies		—				(2.5	)			—
Charitable product donations		(5.6	)			(0.6	)			0.4
Other, net		(2.4	)			(0.9	)			0.8
State taxes, net of federal income tax benefit		(36.1	)			1.7				3.1
Tax credits		(50.4	)			(1.8	)			0.2
Effective income tax rate		(65.5	)	%		17.0		%		60.0		%

(a)

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. Shortly after the Tax Act was enacted, the SEC issued accounting guidance, which provided a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act.

In connection with initial analysis of the impact of the Tax Act, the Company recorded a provisional discrete income tax benefit of $26.0 million in the period ended December 30, 2017 associated with the re-measurement of deferred tax assets and liabilities as a result of the reduction in the U.S. federal corporate tax rate. In the third quarter of 2018, the Company completed its accounting for the income tax effects of certain elements of the Tax Act, resulting in an income tax benefit of $0.5 million.

Deferred tax assets and liabilities resulting from temporary differences as of December 28, 2019 and December 29, 2018 are as follows:

	December 28,		December 29,
(In thousands)	2019		2018
Deferred tax assets:
Employee benefits	$	17,087	$	17,330
Accrued workers' compensation		1,632		1,402
Allowance for doubtful accounts		10,870		10,171
Intangible assets		1,319		—
Restructuring		472		1,806
Deferred revenue		1,678		1,269
Accrued rent		399		3,196
Lease liabilities		85,005		7,843
Accrued insurance		1,007		1,150
Federal net operating loss carryforwards (a)		2,332		—
Federal credits (b)		851		—
State net operating loss carryforwards (a)		4,498		2,656
All other		4,073		3,917
Total deferred tax assets		131,223		50,740

Deferred tax liabilities:
Property and equipment		45,136		43,844
Lease assets		73,191		5,314
Inventory		33,739		32,401
Goodwill		21,404		15,763
Intangible assets		—		1,011
All other		864		1,661
Total deferred tax liabilities		174,334		99,994
Net deferred tax liability	$	43,111	$	49,254

(a) As of December 28, 2019, the Company’s federal net operating loss carryforwards do not expire, and state net operating loss carryforwards in various taxing jurisdictions expire in tax years 2021 through 2039 if not utilized.

(b) As of December 28, 2019, the Company’s federal credit carryforwards expire in tax year 2039.

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

	December 28,			December 29,
(In thousands)	2019			2018
Balance at beginning of year	$	1,477		$	2,408
Gross increases - tax positions taken in prior years		71			163
Gross decreases - tax positions taken in prior years		(125	)		(171	)
Gross increases - tax positions taken in current year		850			894
Lapsed statutes of limitations		(848	)		(1,817	)
Balance at end of year	$	1,425		$	1,477

Unrecognized tax benefits of $0.9 million are set to expire prior to January 2, 2021. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The amount recognized due to a lapse in the statute of limitations that reduced the Company’s effective income tax rate in 2019 and 2018 was $0.2 million and $1.0 million, respectively. 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 $0.3 million as of December 28, 2019.

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 the year ended January 2, 2016.