8. Income Taxes
Income tax (benefit) expense for the last three fiscal years consists of the following (in thousands):
|
|
|
Fiscal Year |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
4,631 |
|
|
$ |
6,034 |
|
|
$ |
8,161 |
|
|
State |
|
|
2,465 |
|
|
|
2,427 |
|
|
|
3,302 |
|
|
|
|
|
7,096 |
|
|
|
8,461 |
|
|
|
11,463 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(15,727 |
) |
|
|
6,869 |
|
|
|
5,278 |
|
|
State |
|
|
(759 |
) |
|
|
204 |
|
|
|
41 |
|
|
|
|
|
(16,486 |
) |
|
|
7,073 |
|
|
|
5,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
(9,390 |
) |
|
$ |
15,534 |
|
|
$ |
16,782 |
|
Income tax expense for the last three fiscal years differs from the amount that would result from applying the federal statutory rate as follows:
|
|
|
Fiscal Year |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Income tax at statutory rates |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
State income taxes, net of federal benefit |
|
|
3.5 |
|
|
|
3.3 |
|
|
|
3.7 |
|
|
Permanent differences |
|
|
(0.4 |
) |
|
|
— |
|
|
|
0.2 |
|
|
Income tax credits |
|
|
(18.7 |
) |
|
|
(10.6 |
) |
|
|
(9.4 |
) |
|
Prior year tax credit true-up |
|
|
(1.1 |
) |
|
|
(1.3 |
) |
|
|
(3.1 |
) |
|
Change in statutory rate |
|
|
(44.4 |
) |
|
|
— |
|
|
|
— |
|
|
Other, net |
|
|
(0.4 |
) |
|
|
(1.0 |
) |
|
|
0.6 |
|
|
|
|
|
(26.5 |
)% |
|
|
25.4 |
% |
|
|
27.0 |
% |
The net deferred tax liability at January 2, 2018 and January 3, 2017 were presented as follows on the balance sheet:
|
|
|
January 2, 2018 |
|
|
January 3, 2017 |
|
||
|
Other assets |
|
$ |
1,408 |
|
|
$ |
816 |
|
|
Deferred tax liability |
|
|
(21,694 |
) |
|
|
(37,587 |
) |
|
Net deferred income tax liability |
|
$ |
(20,286 |
) |
|
$ |
(36,771 |
) |
The components of the deferred income tax asset (liability) consist of the following (in thousands):
|
|
|
January 2, 2018 |
|
|
January 3, 2017 |
|
||
|
Deferred income tax asset: |
|
|
|
|
|
|
|
|
|
Gift cards |
|
$ |
2,047 |
|
|
$ |
1,521 |
|
|
Accrued expenses |
|
|
8,936 |
|
|
|
13,752 |
|
|
Other |
|
|
1,639 |
|
|
|
2,193 |
|
|
Deferred Revenues |
|
|
7,039 |
|
|
|
6,255 |
|
|
Stock-based compensation |
|
|
4,767 |
|
|
|
6,152 |
|
|
Deferred rent |
|
|
7,977 |
|
|
|
11,637 |
|
|
Income tax credits |
|
|
3,266 |
|
|
|
6,559 |
|
|
Net operating losses |
|
|
1,196 |
|
|
|
785 |
|
|
Other |
|
|
1,714 |
|
|
|
2,071 |
|
|
State tax |
|
|
472 |
|
|
|
985 |
|
|
Subtotal current deferred income tax asset |
|
|
39,053 |
|
|
|
51,910 |
|
|
Valuation Allowance |
|
|
(161 |
) |
|
|
(266 |
) |
|
Total current deferred income tax asset |
|
|
38,892 |
|
|
|
51,644 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liability: |
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
(53,964 |
) |
|
|
(80,842 |
) |
|
Intangible assets |
|
|
(1,400 |
) |
|
|
(2,085 |
) |
|
Smallwares |
|
|
(3,814 |
) |
|
|
(5,488 |
) |
|
Total non-current deferred income tax liability |
|
|
(59,178 |
) |
|
|
(88,415 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability |
|
$ |
(20,286 |
) |
|
$ |
(36,771 |
) |
At January 2, 2018, we had federal and California income tax credit carryforwards of approximately $3.3 million and $1.2 million, respectively, consisting primarily of the credit for FICA taxes paid on reported employee tip income and California enterprise zone credits. The FICA tax credits will begin to expire in 2036 and the California enterprise zone credits will begin to expire in 2023.
As of January 2, 2018, and January 3, 2017, we have recorded a valuation allowance against certain state net operating loss and tax credit carryforwards of $0.2 million and $0.3 million, respectively, net of federal benefit which are not more likely than not to be realized prior to expiration. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of January 2, 2018 and January 3, 2017, we had accrued $0.1 million for interest and penalties with respect to uncertain tax positions.
As of January 2, 2018, unrecognized tax benefits recorded was approximately $1.5 million, of which approximately $1.0 million, if reversed would impact our effective tax rate. We anticipate no change in our liability for unrecognized tax benefits within the next twelve-month period.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
Fiscal Year |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Gross unrecognized tax benefits at beginning of year |
|
$ |
1,245 |
|
|
$ |
2,998 |
|
|
$ |
2,173 |
|
|
Increases for tax positions taken in prior years |
|
|
110 |
|
|
|
126 |
|
|
|
474 |
|
|
Decreases for tax positions taken in prior years |
|
|
(4 |
) |
|
|
(2,037 |
) |
|
|
— |
|
|
Increases for tax positions taken in the current year |
|
|
200 |
|
|
|
188 |
|
|
|
386 |
|
|
Lapse in statute of limitations |
|
|
(35 |
) |
|
|
(30 |
) |
|
|
(35 |
) |
|
Gross unrecognized tax benefits at end of year |
|
$ |
1,516 |
|
|
$ |
1,245 |
|
|
$ |
2,998 |
|
Our uncertain tax positions are related to tax years that remain subject to examination by tax agencies. As of January 2, 2018, the earliest tax year still subject to examination by the Internal Revenue Service is 2014. The earliest year still subject to examination by a significant state or local taxing jurisdiction is 2013.
Tax Reform Act
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law substantially amending the Internal Revenue Code of 1986. The TCJA made significant changes to the taxation of corporations such as a reduction in the highest corporate marginal tax rate from 35% to 21%, additional limitations on certain deductions for executive compensation, introducing an additional capital investment deduction, modifying rules for the deduction of interest expense, and modifying the rules regarding the utilization of net operating loss carryforwards.
The SEC staff issued Staff Accounting Bulletin 118 providing guidance on accounting for the tax effects of the TCJA. To the extent that a company's accounting for certain income tax effects of the TCJA is incomplete, but it is able to determine a reasonable estimate, then the company must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately prior to the enactment of the TCJA.
We have reviewed and will continue to monitor the impact the legislation has on our business. As of January 2, 2018, we recorded a tax benefit of $15.7 million related to the re-measurement of deferred tax assets and liabilities at the new federal income tax rate provided by the TCJA. In addition, we will benefit from the ability to immediately expense the majority of capital expenditures placed in service after September 27, 2017. In accordance with Staff Accounting Bulletin 118, as of December 31, 2017, we have not completed our accounting for the tax effect of the enactment of the TCJA; however we have made a reasonable estimate of the impact on our deferred tax balances.