Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

17. Income Taxes

Income Tax Provision

The income tax provision consists of the following:

	Year Ended
	December 31, 2023			January 1, 2023		January 2, 2022
U.S. Federal—current	$	67,898		$	66,398	$	60,329
U.S. Federal—deferred		(5,927	)		1,028		(1,663	)
U.S. Federal—total		61,971			67,426		58,666
State—current		21,902			19,823		19,715
State—deferred		1,011			900		(146	)
State—total		22,913			20,723		19,569
Total provision	$	84,884		$	88,149	$	78,235

Tax Rate Reconciliation

Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pre-tax income as a result of the following:

	Year Ended
	December 31, 2023			January 1, 2023			January 2, 2022
Federal statutory rate		21.0	%		21.0	%		21.0	%
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal benefit		5.4			4.7			4.8
Enhanced charitable contribution impact		(1.0	)		(0.9	)		(1.5	)
Non-deductible Executive Compensation		1.4			0.9			0.3
Benefit of federal tax credit		(0.7	)		(0.5	)		(0.4	)
Excess tax benefits from share based payments		(1.2	)		(0.4	)		(0.1	)
Other, net		(0.2	)		0.4			0.2
Effective income tax rate		24.7	%		25.2	%		24.3	%

The effective income tax rate decreased to 24.7% in 2023 from 25.2% in 2022 primarily due to excess tax benefits related to the exercise or vesting of share-based awards partially offset by an increase in nondeductible executive compensation The effective income tax rate increased to 25.2% in 2022 from 24.3% in 2021 primarily due to decreased charitable contribution deductions in 2022 from the lapsing of benefits initially provided for in the CARES Act.

Excess tax benefits or detriments associated with share-based payment awards are recognized as income tax benefits or expense in the income statement. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. The income tax benefit resulting from share-based awards was $5.0 million, $1.7 million and $0.2 million for 2023, 2022 and 2021, respectively, and is reflected as a reduction to the 2023, 2022 and 2021 income tax provision.

Deferred Taxes

Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows:

	As Of
	December 31, 2023			January 1, 2023
Deferred tax assets
Employee benefits	$	18,329		$	16,052
Tax credits		105			166
Operating leases		392,168			329,154
Other lease related		6,137			5,740
Other accrued liabilities		4,320			4,004
Charitable contribution carryforward		3,343			2,819
Inventories and other		2,905			2,605
Total gross deferred tax assets		427,307			360,540
Less: Valuation Allowance		(3,343	)		(917	)
Total deferred tax assets, net of valuation allowance		423,964			359,623
Deferred tax liabilities
Depreciation and amortization		(80,765	)		(83,091	)
Intangible assets		(64,668	)		(52,413	)
Operating leases		(339,973	)		(284,377	)
Asset retirement obligations		(939	)		(865	)
Total gross deferred tax liabilities		(486,345	)		(420,746	)
Net deferred tax liability	$	(62,381	)	$	(61,123	)

A valuation allowance is established for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that the realization of future deductions is uncertain.

Management performs an assessment over future taxable income to analyze whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

The valuation allowance was $3.3 million and $0.9 million as of December 31, 2023 and January 1, 2023, respectively, related to contribution carryforwards that management does not believe will ultimately be realized.

The Company has evaluated all available positive and negative evidence and believes it is probable that all other the deferred tax assets will be realized and has not recorded any other valuation allowance against the Company’s deferred tax assets as of December 31, 2023 and January 1, 2023.

The Company applies the authoritative accounting guidance under ASC 740 for the recognition, measurement, classification and disclosure of uncertain tax positions taken or expected to be taken in a tax return.

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

	As Of
	December 31, 2023			January 1, 2023			January 2, 2022
Beginning balance	$	1,119		$	1,770		$	1,803
Additions based on tax positions related to the    current year		58			43			16
Additions based on tax positions related to prior years		—			—			31
Reductions for settlements with taxing authorities		—			(694	)		—
Reduction due to lapse of applicable statute of limitations		(700	)		—			—
Reductions for tax positions for prior years		—			—			(80	)
Ending balance	$	477		$	1,119		$	1,770

The Company had unrecognized tax benefits (tax effected) of $0.5 million and $1.1 million as of December 31, 2023 and January 1, 2023, respectively. These would impact the effective tax rate if recognized.

The Company’s policy is to recognize accrued interest and penalties as a component of income tax expense.

The Company anticipates a decrease in the total amount of unrecognized tax benefits in the amount of $0.2 million during the next twelve months related to the passing of the applicable statute of limitations for a tax position taken for executive compensation.

The Company files income tax returns with federal and state tax authorities within the United States. The general statute of limitations for income tax examinations remains open for federal tax returns for tax years 2017 through 2022 and state tax returns for the tax years 2018 through 2022.