Income Taxes

12 Months Ended

Dec. 28, 2019

Income Taxes

(5) Income Taxes

The provisions for income taxes consisted of the following (in thousands):

	Fiscal Years
	2019		2018		2017
Current:
Federal	$	52,422	$	60,650	$	72,025
State		10,367		9,410		8,312
Foreign		504		993		500
Total current	$	63,293	$	71,053	$	80,837
Deferred:
Federal	$	4,212	$	1,730	$	(17,110	)
State		555		385		79
Total deferred	$	4,767	$	2,115	$	(17,031	)
Income taxes	$	68,060	$	73,168	$	63,806

On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The legislation significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. With respect to the change in corporate tax rates, the Tax Reform Act permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. In connection with this reduction in the U.S. corporate income tax rate, the Company revalued its ending net deferred tax liabilities at December 30, 2017 resulting in a provisional $20,430,000 tax benefit in the Company’s consolidated statement of income for the fiscal year ended December 30, 2017. With respect to the repatriation tax on deemed repatriated earnings of foreign subsidiaries, the Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the fiscal year ended December 31, 2017. The Company had an estimated $17,981,000 of undistributed foreign E&P at the Company’s Canadian subsidiary, Landstar Canada, Inc., subject to the deemed mandatory repatriation and, accordingly, recognized a provisional $900,000 of income tax expense in the Company’s consolidated statement of income for the fiscal year ended December 30, 2017. After the utilization of existing tax credits, the Company paid U.S. federal cash taxes of approximately $500,000 on the deemed mandatory repatriation in 2018.    

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the fiscal year ended December 30, 2017. The accounting was complete when the 2017 U.S. corporate income tax return was filed in 2018 and no significant adjustments were made to the previously recognized provisional amounts.

Also during fiscal year 2017, the Company adopted ASU 2016-09. As required by ASU 2016-09, the Company recognized $3,019,000, $2,060,000 and $1,299,000 of excess tax benefits on stock-based awards in its provision for income taxes in the 2019, 2018 and 2017 fiscal years, respectively.

Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities consisted of the following (in thousands):

	Dec. 28, 2019		Dec. 29, 2018
Deferred tax assets:
Receivable valuations	$	4,004	$	3,414
Share-based payments		2,923		5,286
Self-insured claims		3,565		4,201
Other		2,935		3,843
Total deferred tax assets	$	13,427	$	16,744
Deferred tax liabilities:
Operating property	$	49,669	$	48,553
Goodwill		4,223		3,812
Other		1,531		1,608
Total deferred tax liabilities	$	55,423	$	53,973
Net deferred tax liability	$	41,996	$	37,229

The following table summarizes the differences between income taxes calculated at the federal income tax rates of 21% for 2019 and 2018, respectively, and 35% for 2017 on income before income taxes and the provisions for income taxes (in thousands):

	Fiscal Years
	2019			2018			2017
Income taxes at federal income tax rate	$	62,110		$	68,960		$	84,281
State income taxes, net of federal income tax benefit		8,876			7,713			5,417
Non-deductible executive compensation		—			1,012			—
Meals and entertainment exclusion		644			719			1,021
Share-based payments		(3,093	)		(2,138	)		(1,549	)
Section 199 deductions and R&D credits		(714	)		(3,309	)		(5,546	)
Tax Reform Act		—			—			(19,530	)
Other, net		237			211			(288	)
Income taxes	$	68,060		$	73,168		$	63,806

The Company files a consolidated U.S. federal income tax return. The Company or its subsidiaries file state tax returns in the majority of the U.S. state tax jurisdictions. With few exceptions, the Company and its subsidiaries are no longer subject to U.S. federal or state income tax examinations by tax authorities for 2015 and prior years. The Company’s wholly owned Canadian subsidiary, Landstar Canada, Inc., is subject to Canadian income and other taxes. The Company’s wholly owned Mexican subsidiaries, Landstar Holdings, S. de R.L.C.V., Landstar Metro, S.A.P.I. de C.V. and Landstar Metro Servicios S.A.P.I. de C.V. are subject to Mexican and U.S. income and other taxes.

As of December 28, 2019 and December 29, 2018, the Company had $2,253,000 and $2,403,000, respectively, of net unrecognized tax benefits representing the provision for the uncertainty of certain tax positions plus a component of interest and penalties. Estimated interest and penalties on the provision for the uncertainty of certain tax positions is included in income tax expense. At December 28, 2019 and December 29, 2018 there was $690,000 and $653,000, respectively, accrued for estimated interest and penalties related to the uncertainty of certain tax positions. The Company does not currently anticipate any significant increase or decrease to the unrecognized tax benefit during fiscal year 2020.

The following table summarizes the rollforward of the total amounts of gross unrecognized tax benefits for fiscal years 2019 and 2018 (in thousands):

	Fiscal Years
	2019			2018
Gross unrecognized tax benefits – beginning of the year	$	3,519		$	4,812
Gross increases related to current year tax positions		468			714
Gross increases related to prior year tax positions		469			370
Gross decreases related to prior year tax positions		(295	)		(1,575	)
Settlements		(356	)		(159	)
Lapse of statute of limitations		(791	)		(643	)
Gross unrecognized tax benefits – end of the year	$	3,014		$	3,519

Landstar paid income taxes of $67,317,000 in fiscal year 2019, $75,124,000 in fiscal year 2018 and $86,607,000 in fiscal year 2017.