Income Taxes

3 Months Ended

Apr. 02, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company's effective tax rate was 2% for the three-month period ended April 2, 2023, and 23% for the three-month period ended April 3, 2022.

The Company has defined its major tax jurisdictions as the United States, Ireland, China, and Korea, and within the United States, Massachusetts. The statutory tax rate is 12.5% in Ireland, 25% in China, and 22% in Korea compared to the U.S. federal statutory corporate tax rate of 21%. These foreign tax rate differences resulted in a net decrease to the effective tax rate for both the three-month periods ended April 2, 2023 and April 3, 2022.

The Company recorded a net discrete tax benefit totaling $3,594,000 for the three-month period ended April 2, 2023, and a net discrete tax expense totaling $6,338,000 for the same period in 2022.

Discrete tax items for the three-month period ended April 2, 2023 included (1) an increase in tax expense of $1,068,000 related to stock-based compensation; (2) a decrease in tax expense of $2,292,000 for releasing tax reserves on state tax credits; (3) a decrease in tax expense of $2,198,000 for adjustments to certain deferred tax assets; and (4) a decrease in tax expense of $172,000 for return-to-provision adjustments.

Discrete tax items for the three-month period ended April 3, 2022 included (1) an increase in tax expense of $1,417,000 arising from an Internal Revenue Service (IRS) audit; (2) an increase in tax expense of $1,734,000 to establish a full valuation allowance against deferred tax assets related to foreign tax credits; and (3) an increase in tax expense of $3,187,000 consisting primarily of transfer pricing and return-to-provision adjustments.

Excluding the impact of these discrete tax items, the Company’s effective tax rate was 16% for both the three-month periods ended April 2, 2023 and April 3, 2022.

The Company’s reserve for income taxes, including gross interest and penalties, was $20,030,000 as of April 2, 2023, which was classified as a non-current liability. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period.

Within the United States, the tax years 2019 through 2022 remain open to examination by the IRS, and 2018 through 2021 remain open to examination by various state tax authorities. The Company is currently under audit by the state of Massachusetts for the years 2020 and 2021. The tax years 2017 through 2022 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates.