Income Taxes

The following table presents the domestic and foreign components of income (loss) before income taxes (in thousands):



	2016			2015			2014
Domestic (loss) income	$	(67,626	)	$	(21,674	)	$	18,586
Foreign loss	(2,818		)	(825		)	(36		)
	$	(70,444	)	$	(22,499	)	$	18,550

The components of the provision (benefit) for income taxes are as follows for 2016, 2015 and 2014 (in thousands):



	2016			2015			2014
Current tax provision:
Federal	$	—		$	—		$	—
State	134			144			792
Foreign	—			—			—
	134			144			792
Deferred tax provision (benefit):
Federal	(1,979		)	(7,169		)	5,662
State	2,854			(1,495		)	668
Foreign	224			(214		)	—
	1,099			(8,878		)	6,330
Total provision (benefit) for income taxes	$	1,233		$	(8,734	)	$	7,122

The reconciliation of income tax provision (benefit) that would result from applying the federal statutory rate to pre-tax income as shown in the accompanying Consolidated Statements of Operations is as follows for 2016, 2015 and 2014 (in thousands):



	2016			2015			2014
Federal income tax (benefit) expense at federal rate	$	(23,740	)	$	(7,650	)	$	6,299
State income tax expense (benefit), net of federal tax	(2,975		)	(960		)	972
Other permanent differences	996			378			170
Foreign rate differential	214			66			6
Tax credits	(749		)	(423		)	(241		)
Change in valuation allowance	27,353			—			—
Other items, net	134			(145		)	(84		)
Provision (benefit) for income taxes	$	1,233		$	(8,734	)	$	7,122
Effective income tax rate	(1.8		)%	38.8		%	38.4		%

In 2016 and 2015, the Company did not recognize any tax benefits on option exercises at fair value in excess of those utilized to record stock-based compensation for book purposes. In 2014, the Company recognized $0.3 million of tax benefits on option exercises at fair value in excess of those utilized to record stock-based compensation for book purposes as a credit to additional paid-in capital.

The Company’s total deferred tax assets and liabilities are as follows (in thousands):



	2016			2015
Deferred tax assets	$	46,975		$	30,748
Deferred tax liabilities	(47,410		)	(30,084		)
Total deferred tax (liabilities) assets, net	$	(435	)	$	664

Deferred income taxes arise because of the differences in the book and tax bases of certain assets and liabilities. Deferred income tax liabilities and assets consist of the following (in thousands):



	2016			2015
Deferred tax assets (liabilities):
Loss carry forwards	$	14,046		$	4,234
Deferred rent and franchise revenue	17,753			15,802
Property, equipment and intangible assets	(14,130		)	(24,950		)
Stock-based compensation	2,802			2,833
Tax credit carry forwards	2,636			1,609
Inventory smallwares	(2,805		)	(2,589		)
Other accrued expenses	5,022			2,124
Other	1,594			1,601
Total net deferred tax assets	26,918			664
Valuation allowance	(27,353		)	—
Net deferred tax (liabilities) assets	$	(435	)	$	664

During 2016, the Company determined that it was appropriate to record a valuation allowance of $27.4 million against U.S. and Canadian deferred tax assets due to uncertainty regarding the realizability of future tax benefits. The valuation allowance was recorded against net deferred tax assets, exclusive of indefinite-lived intangibles. The Company will maintain a valuation allowance against deferred tax assets until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded valuation allowance will generally result in a benefit to the effective tax rate. The effective tax rate for fiscal year 2016 reflects the impact of a valuation allowance on deferred tax assets, which was not recorded for the fiscal year 2015.

As of January 3, 2017 and December 29, 2015, net operating loss (“NOL”) carry forwards for federal income tax purposes of approximately $60.0 million and $34.0 million, respectively, were available to offset future taxable income through the year 2036 and 2035, respectively. These NOL carry forwards include excess tax deductions for equity compensation. The Internal Revenue Code Section 382 generally limits the utilization of NOLs when there is an ownership change. The Company has not completed an analysis of ownership changes through January 3, 2017 and prior to the utilization of NOLs in the future the Company will complete a Section 382 study to determine whether there are any limitations. If such a limitation exists, it is possible that a portion of the NOLs may not be available for use before expiration. As a result of certain realization requirements of ASC 718, the deferred tax assets shown above include only realized tax deductions related to equity compensation recognized for financial reporting during the years ended January 3, 2017 and December 29, 2015. Equity will be increased by up to $8.5 million if and when the NOL is ultimately realized.

Uncertain tax positions are recognized if it is more likely than not that the Company will be able to sustain the tax position taken, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution of the benefit. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.

There were no uncertain tax positions for the years ended January 3, 2017 or December 29, 2015. The only periods subject to examination for the Company’s federal, foreign and state returns are 2012 through 2015.