Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.2
Income Taxes
12 Months Ended
Sep. 26, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision for income tax expense (benefit) consists of the following:
  Fiscal Year Ended
  September 26, 2020 September 28, 2019 September 29, 2018
  (in thousands)
Current:
Federal $ 33,775  $ 17,048  $ 5,728 
State 5,063  2,728  2,319 
Foreign (5) 169  91 
Total 38,833  19,945  8,138 
Deferred:
Federal (6,019) 4,278  (3,676)
State (582) 2,380  (1,162)
Foreign (14)
Total (6,615) 6,659  (4,833)
Total $ 32,218  $ 26,604  $ 3,305 
A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate is as follows:
  Fiscal Year Ended
  September 26, 2020 September 28, 2019 September 29, 2018
Statutory federal income tax rate 21.0  % 21.0  % 24.5  %
State income taxes, net of federal benefit 2.3  4.3  0.9 
Other permanent differences —  0.7  (0.1)
Adjustment of prior year accruals (0.2) (0.6) — 
Credits (0.6) (0.9) (0.8)
Rate change – Tax reform —  —  (16.9)
Stock based compensation (1.4) (1.6) (5.4)
Other (0.1) (0.6) 0.4 
Effective income tax rate 21.0  % 22.3  % 2.6  %
Deferred income taxes reflect the impact of “temporary differences” between asset and liability amounts for financial reporting purposes and such amounts as determined based on existing tax laws. The tax effect of temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:
  September 26, 2020 September 28, 2019
  Deferred
Tax
Assets
Deferred
Tax
Liabilities
Deferred
Tax
Assets
Deferred
Tax
Liabilities
(in thousands)
Allowance for doubtful accounts $ 6,618  $ —  $ 5,029  $ — 
Inventory write-downs 8,624  —  8,374  — 
Prepaid expenses —  1,603  —  2,060 
Nondeductible reserves 9,484  —  3,968  — 
State taxes 505  —  39  — 
Employee benefits 12,913  —  5,704  — 
Depreciation and amortization —  85,302  —  77,901 
Equity loss 2,047  —  884  — 
State net operating loss carryforward 5,652  —  6,579  — 
Stock based compensation 4,743  —  3,538  — 
State credits 2,732  —  2,819  — 
Other 1,774  —  4,774  — 
Valuation allowance (7,124) —  (7,179) — 
Total $ 47,968  $ 86,905  $ 34,529  $ 79,961 
The Company has state tax net operating losses of $97.7 million, which expire at various times between 2020 and 2040, and foreign losses of $4.8 million, of which $4.7 million do not expire, and $0.1 million which expire in 2029.
The Company has state income tax credits of $3.5 million, which expire at various times beginning in 2020 through 2040. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence including past operating results, future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance against any deferred tax assets. The Company has determined there will be insufficient future separate state and foreign taxable income for the separate parent company and foreign subsidiaries to realize the deferred tax assets. Therefore, valuation allowances of $7.1 million and $7.2 million (net of federal impact) at September 26, 2020 and September 28, 2019, respectively, have been provided to reduce state deferred tax assets to amounts considered recoverable.
The Company classifies uncertain tax positions as non-current income tax liabilities unless expected to be paid within one year. The Company recognizes interest and/or penalties related to income tax matters as a component of pretax income. As of September 26, 2020 and September 28, 2019, accrued interest was less than $0.1 million and no penalties were accrued related to uncertain tax positions.
The following table, which excludes interest and penalties, summarizes the activity related to the Company’s unrecognized tax benefits for fiscal years ended September 26, 2020 and September 28, 2019:  
(in thousands)
Balance as of September 29, 2018 $ 518 
Increases related to prior year tax positions
Increases related to current year tax positions 81 
Decreases related to prior year tax positions — 
Settlements (124)
Decreases related to lapse of statute of limitations — 
Balance as of September 28, 2019 $ 483 
Increases related to prior year tax positions — 
Increases related to current year tax positions 80 
Decreases related to prior year tax positions — 
Settlements — 
Decreases related to lapse of statute of limitations (236)
Balance as of September 26, 2020 $ 327 
As of September 26, 2020, unrecognized income tax benefits totaled approximately $0.3 million and all of the unrecognized tax benefits would, if recognized, impact the Company’s effective income tax rate.
The Company is principally subject to taxation by the United States and various states within the United States. The Company’s tax filings in major jurisdictions are open to examination by tax authorities by the Internal Revenue Service from fiscal year ended 2017 forward and in various state taxing authorities generally from fiscal year ended 2016 forward.
The Company believes there is a reasonable chance that its unrecognized tax benefits will decrease by less than $0.1 million within the next twelve months.