
	2020 1		2019		2018
U.S. federal statutory income tax rate	21	%	21	%	25	%
Impact from foreign operations	(1)		10		3
State income taxes, net of federal benefit	—		1		—
Research and development tax credits	1		(15)		(10)
Domestic production activities deduction / foreign derived intangible income	1		(5)		(2)
Impact of U.S. Tax Act	—		(2)		(57)

Nondeductible stock option expense and other permanent items	—		1		2
Impairment	(18)		—		—
Effective income tax rate	4	%	11	%	(39)	%

1 The fiscal year 2020 effective income tax rate was 4.1%, which includes the impact of the impairment of assets recorded in the fourth quarter of fiscal year 2020 that are non-deductible for tax purposes. Excluding the impact of the impairment of assets, the fiscal year 2020 effective income tax rate would have been a benefit of 14.3%.

The Tax Cuts and Jobs Act (the Tax Act) was enacted into law on December 22, 2017 and made significant changes to U.S. federal corporate tax law. Effective January 1, 2018, the Tax Act lowered the U.S. corporate tax rate from 35% to 21% and prompted various other changes to U.S. federal corporate tax law, including the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations and a one-time deemed repatriation tax on untaxed foreign earnings.

Generally, the impacts of new tax legislation would be required to be recorded in the period of enactment, which was our first quarter of fiscal year 2018. However, in March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which incorporated various SEC paragraphs from Staff Accounting Bulletin No. 118 into income tax accounting guidance effective immediately, allowing registrants to record provisional amounts during a one-year measurement period.

As of December 29, 2018, we completed our accounting for the tax effects of the Tax Act at the conclusion of the one-year measurement period. As a result, the income tax provision for the three months ended December 29, 2018 included certain discrete benefits of $1,293 for Tax Act measurement period adjustments. The discrete benefits relate to $1,297 of additional dividends received deduction for certain foreign tax credits included in the mandatory deemed repatriation tax calculation, partially offset by $4 of expense for other Tax Act measurement period adjustments. The additional dividends received deduction is based on our assessment of the treatment under the applicable provisions of the Tax Act as written and enacted during the first quarter of fiscal year 2019. The Department of the Treasury provided regulatory updates during the three months ended June 29, 2019, causing us to change our assessment of the benefit associated with the dividends received deduction, and in the third quarter of fiscal year 2019 to reverse the entire benefit of $1,297 that was recorded in the first quarter of fiscal year 2019.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law to help alleviate the impact of the COVID-19 pandemic in the United States. Amongst other provisions, the CARES Act allows taxpayers to modify their IRC Section 163(j) business interest limitation in a favorable way that allows for the utilization of more interest deduction for tax years 2019 and 2020. We are analyzing the impacts of these and other provisions of the CARES Act to take full advantage of possible tax savings.

The fiscal year 2020 effective tax rate was 4.1% primarily due to the current year impairment loss which is non-deductible for tax purposes. Additionally, we recorded certain discrete tax benefits of $2,439 related to the fiscal year 2019 return and the impact of the final regulations issued by the Treasury and Internal Revenue Service regarding global intangible low-taxed income (GILTI) in the fourth quarter of fiscal year 2020. This benefit is partially offset by $583 of discrete tax expense for stock-based compensation expense and $608 for foreign taxes that are not creditable in the U.S. Excluding the impact of the impairment of assets and these discrete items, the effective tax rate for fiscal year 2020 was 2.0%, a decrease compared to the prior year rate primarily driven by a decline in earnings.

The fiscal year 2019 effective tax rate was 11.4% primarily due to certain discrete benefits of $3,547 for the favorable true-up of our previously recorded transition tax estimate, successful closure of prior year audit activity and the reduction in the Netherlands income tax rate resulting in remeasurement of the deferred tax liability associated with their intangible assets. Excluding the impact of these discrete items, the effective tax rate for fiscal year 2019 was 18.7%. Factors that increased the effective tax rate for fiscal year 2019 included impacts of the Tax Act, such as elimination of the domestic manufacturing deduction and the implementation of the global intangible low-taxed income (GILTI) provision. These increases were offset by favorable aspects of the Tax Act, such as the decrease in the U.S. income tax rate and provisions for incentivizing foreign-derived intangible income (FDII). In the first quarter of fiscal year 2019, we made an accounting policy election to treat the future tax impacts of the GILTI provisions of the Tax Act as a period cost to the extent applicable.

The fiscal year 2018 effective tax rate was a benefit of 38.7% primarily due to certain discrete benefits of $25,008 for the estimated impact of the Tax Act. The discrete benefits primarily related to $31,647 of estimated benefit from the remeasurement of our estimated net deferred tax liabilities, partially offset by $6,639 of estimated expense associated with the mandatory deemed repatriation tax. Excluding the impact of these discrete benefits, the effective tax rate for fiscal year 2018 was 17.9% and increased compared to the prior year rate excluding the impact of certain discrete benefits primarily due to higher fiscal year 2018 earnings before taxes, partially offset by the lower U.S. corporate tax rate under the Tax Act.


	2020		2019
Deferred tax assets
Accrued compensation and benefits	$	14,482	$	15,014
Inventory reserves	5,229		4,510
163(j) interest disallowance	3,991		4,253
Other assets	5,893		4,565
Allowance for doubtful accounts	1,152		1,408
Net operating loss carryovers	1,533		2,103
State and foreign tax credit carryovers	870		1,224
Research and development tax credit carryovers	11,612		3,774
Unrealized derivative instrument gains	1,062		311
Total deferred tax asset before valuation allowance	45,824		37,162
Less valuation allowance	(5,933)		(5,279)
Total deferred tax assets	39,891		31,883
Deferred tax liabilities
Property and equipment	15,016		13,158
Foreign deferred revenue and other	10,330		5,779
Intangible assets	42,986		47,248

Total deferred tax liabilities	68,332		66,185
Net deferred tax assets (liabilities)	$	(28,441)	$	(34,302)

As of October 3, 2020, we had a Minnesota research and development tax credit carryover of $4,892, which may be carried forward fifteen years. We also had New York and North Carolina tax credit carryovers of $1,101. We have determined that the benefit of these tax credits is not likely to be realized before they expire and have recorded a full valuation allowance against these deferred tax assets.

During fiscal year 2020, we repatriated $15,375 of current earnings from various subsidiaries and recorded $404 of corresponding tax expense. During fiscal year 2019, we repatriated $5,943 of current earnings from various foreign subsidiaries

We have not recognized a deferred tax liability for the undistributed earnings of certain foreign operations because those subsidiaries have invested or will invest the undistributed earnings indefinitely. As of October 3, 2020 and September 28, 2019, undistributed earnings were $56,948 and $68,784, respectively. Because of the availability of U.S. dividends received deductions, it is impracticable for us to determine the amount of U.S. federal tax liability that would be payable if these earnings were not indefinitely reinvested. Deferred taxes are recorded for earnings of foreign operations when we determine that such earnings are no longer indefinitely reinvested.


	2020		2019
Beginning liability for unrecognized tax benefits	$	4,414	$	6,158
Increase due to tax positions related to the current year	577		663
Increase (decrease) due to tax positions related to prior years	775		960
Decrease due to settlements with tax authorities	(947)		(2,635)
Decrease due to lapse of statute of limitations	—		(732)
Ending liability for unrecognized tax benefits	$	4,819	$	4,414

As of October 3, 2020 and September 28, 2019, we have accrued interest related to uncertain income tax positions of approximately $517 and $332, respectively. As of October 3, 2020 and September 28, 2019, no accrual for penalties related to uncertain tax positions existed. Interest and penalties related to uncertain tax positions are included in interest expense, net and general and administrative expense, respectively, in the Consolidated Statements of Income.

We are subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are no longer subject to U.S. federal tax examinations for fiscal years ending before fiscal year 2018 and with limited exceptions, state and foreign income tax examinations for fiscal years ending before fiscal year 2016. As of October 3, 2020, we do not expect significant changes in the amount of unrecognized tax benefits for our U.S. or foreign subsidiaries during the next 12 months.

As of October 3, 2020 and September 28, 2019, we expected to receive income tax refunds within the next fiscal year. As a result, we recognized a current income tax receivable of $4,207 and $4,282 as of October 3, 2020 and September 28, 2019, respectively, which is included in prepaid expenses and other current assets in the Consolidated Balance Sheets.