Income Taxes

9 Months Ended

Sep. 28, 2019

Income Taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment. The estimated annual effective tax rate for the nine months ended September 28, 2019 was 24.0%. Our annual effective tax rate for the nine months ended September 29, 2018 was estimated at 21.7%. Our effective tax rate was 29.2% and 27.3% for the three months ended September 28, 2019 and September 29, 2018, respectively. The change in the effective tax rate from statutory tax rates is primarily due to the impact of state and local taxes which are partially offset by favorable discrete items.

As of September 28, 2019, we had unrecognized tax benefits of $1,323, of which $597 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $40. At December 31, 2018, we had unrecognized tax benefits of $1,325, of which $599 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $35. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for financial reporting purposes.


J.	Income Taxes (continued)

We recognize interest accrued related to unrecognized tax benefits in income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.

The Company is routinely under audit by federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Company has been audited by the Internal Revenue Service through 2016. With the exception of U.S. state jurisdictions, the Company is no longer subject to examination by tax authorities for the years through 2016. As of September 28, 2019, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.