Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

11.  Income Taxes

The components of the net deferred tax liability are as follows:

	December 31, 2020		December 26, 2019
	(in thousands)
Accrued employee benefits	$	16,685	$	15,145
Depreciation and amortization		(82,964)		(69,100)
Operating lease assets		(58,704)		(62,339)
Operating lease liabilities		64,055		62,750
Net operating loss and tax credit carryforwards		21,526		—
Other		5,973		5,282
Net deferred tax liability	$	(33,429)	$	(48,262)

The Company has a federal net operating loss carryforward of $28,691,000 and a state net operating loss carryforward of $175,039,000 as of December 31, 2020.  In addition, the Company has federal tax credit carryforwards of $5,074,000 as of December 31, 2020.

Income tax expense consists of the following:

	Year Ended
	December 31,		December 26,		December 27,
	2020		2019		2018
	(in thousands)
Current:
Federal	$	(32,626)	$	1,187	$	7,022
State		526		2,041		3,181
Deferred:
Federal		(24,751)		9,228		2,815
State		(14,085)		(136)		109
	$	(70,936)	$	12,320	$	13,127

The Company’s effective income tax rate, adjusted for earnings (losses) from noncontrolling interests, was 36.2%, 22.7% and 19.7% for fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The Company's effective income tax rate during fiscal 2020 benefitted from several accounting method changes and the March 27, 2020 signing of the CARES Act, one of the provisions of which allows the Company's 2019 and 2020 taxable losses to be carried back to prior fiscal years during which the federal income tax rate was 35%, compared to the current statutory federal income tax rate of 21%. During fiscal 2020, the Company recorded current tax benefits of $11,976,000 and deferred tax benefits of $8,095,000 related to the CARES Act and tax accounting changes. Excluding these favorable impacts, the company’s effective income tax rate for fiscal 2020 was 26.0%. The Company does not include the income tax expense or benefit related to the net earnings or loss attributable to noncontrolling interests in its income tax expense as the entity is considered a pass-through entity and, as such, the income tax expense or benefit is attributable to its owners.

The Company has evaluated the provisions of the CARES Act. Among other things, the CARES Act includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. After reviewing these provisions, the Company filed income tax refund claims of approximately $37,400,000 in fiscal 2020, with the primary benefit derived from several accounting method changes and new rules for qualified improvement property expenditures and net operating loss carrybacks. In fiscal 2020, the Company received $31,500,000 of the requested tax refunds. The Company expects to receive the remaining $5,900,000 during the first quarter of fiscal 2021. The Company also expects to apply a significant portion of the tax loss incurred in fiscal 2020 to prior year income, which may also result in a refund that may approximate $21,000,000 in fiscal 2021 when the Company's fiscal 2020 tax return is filed (with additional tax loss carryforwards that may be used in future years).

11.  Income Taxes (continued)

During fiscal 2018, the Company recorded current tax benefits of $1,947,000 related to reductions in deferred tax liabilities related to tax accounting method changes that the Company made subsequent to the Tax Cuts and Jobs Act of 2017. Excluding these favorable impacts, the Company’s effective income tax rate for fiscal 2018 was 22.7%. The Company also recorded significant current tax benefits in fiscal 2018 related to excess tax benefits on share-based compensation.

A reconciliation of the statutory federal tax rate to the effective tax rate on earnings attributable to The Marcus Corporation follows:

	Year Ended
	December 31,		December 26,		December 27,
	2020		2019		2018
Statutory federal tax rate	21.0	%	21.0	%	21.0	%
Tax benefit from Tax Cuts and Jobs Act of 2017	—		—		(2.9)
Tax benefit from CARES Act and accounting method changes	10.3		—		—
State income taxes, net of federal income tax benefit	5.0		5.5		6.1
Tax credits, net of federal income tax benefit	0.2		(2.7)		(1.1)
Other	(0.3)		(1.1)		(3.4)
	36.2	%	22.7	%	19.7	%

Net income taxes paid (refunded) in fiscal 2020, fiscal 2019 and fiscal 2018 were $(33,275,000), $3,062,000 and $(218,000), respectively. Net income taxes refunded in fiscal 2020 included $31,500,000 related to net operating loss carrybacks to prior years, as allowed under the provisions of the CARES Act.

A reconciliation of the beginning and ending gross amounts of unrecognized tax benefit are as follows:

	Year Ended
	December 31,		December 26,		December 27,
	2020		2019		2018
	(in thousands)
Balance at beginning of year	$	—	$	—	$	102
Increases due to:
Tax positions taken in prior years		—		—		—
Tax positions taken in current year		—		—		—
Decreases due to:
Tax positions taken in prior years		—		—		—
Settlements with taxing authorities		—		—		(102)
Lapse of applicable statute of limitations		—		—		—
Balance at end of year	$	—	$	—	$	—

During fiscal 2018, the Company settled a dispute with a state taxing authority and no longer carries an unrecognized tax benefit subsequent to December 27, 2018. The Company had no accrued interest or penalties at December 31, 2020 or December 26, 2019. The Company classifies interest and penalties relating to income taxes as income tax expense. For the year ended December 31, 2020, $296,000 of interest income was recognized in the consolidated statement of earnings (loss), compared to $1,000 of interest income for the year ended December 26, 2019 and $68,000 of interest income for the year ended December 27, 2018.

11.  Income Taxes (continued)

The Company is currently undergoing an examination by the Internal Revenue Service of its fiscal 2019 income tax return.  This examination also includes the previous five fiscal years to the extent that net operating losses were carried back to those fiscal years under provisions of the CARES Act. During fiscal 2018, the Company settled, with no change, an examination by the Internal Revenue Service of its income tax return for the 31 weeks ended December 31, 2015. With certain exceptions, the Company’s state income tax returns are no longer subject to examination prior to fiscal 2016. At this time, the Company does not expect the results from any income tax audit or appeal to have a significant impact on the Company’s financial statements.

The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.