Income Taxes

12 Months Ended

Mar. 28, 2020

NOTE 8 – INCOME TAXES

The components of the provision for income taxes are as follows:



	Year Ended Fiscal March
	2020		2019		2018
	(Dollars in thousands)
Current -
Federal	$	2,783	$	5,682	$	20,854
State		1,994		2,409		3,180
		4,777		8,091		24,034
Deferred -
Federal		11,397		11,563		15,153
State		76		954		332
		11,473		12,517		15,485	(a)
Total	$	16,250	$	20,608	$	39,519

_________________

(a)For fiscal 2018, includes $4.7 million related to the Tax Cuts and Jobs Act of 2017 (“Tax Act”).

On December 22, 2017, the Tax Act was signed into law. The Tax Act made broad and complex changes to U.S. federal corporate income taxation. Additionally, in December 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” allowing taxpayers to record provisional amounts for reasonable estimates when they did not have the necessary information available, prepared or analyzed in reasonable detail to complete their accounting for certain income tax effects of the Tax Act. In accordance with this guidance, we recorded a provisional net income tax expense of approximately $4.7 million for the year ended March 31, 2018. This amount is primarily from the remeasurement of our net deferred tax assets to reflect the new, lower U.S. federal corporate income tax rate.

For the third quarter of fiscal 2019, we completed our accounting for the impact of the Tax Act. We did not record any material adjustments to provisional amounts previously recorded.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted into law and provides for changes to the U.S. tax code that impact businesses. Some of the key income tax changes that have an impact on Monro include relaxation of the interest deduction limitation rules and the eligibility of Qualified Improvement Property for bonus depreciation. As of March 28, 2020, we have estimated additional allowable depreciation of approximately $17 million related to certain improvement property now eligible for bonus depreciation in accordance with the CARES Act. The estimated effect of the additional allowable depreciation has been reflected in our current and deferred tax balances as of March 28, 2020.

Deferred tax (liabilities) assets consist of the following:



	March 28,		March 30,
	2020		2019
	(Dollars in thousands)
Lease liabilities	$	(131,484)	$	(62,485)
Goodwill		(47,204)		(39,020)
Property and equipment		(18,232)		(12,036)
Other		(1,288)		(429)
Total deferred tax liabilities		(198,208)		(113,970)
Lease assets		169,366		94,244
Insurance reserves		10,192		9,071
Warranty and other reserves		4,317		3,360
Loss carryforwards		3,602		2,507
Other		6,846		6,954
Total deferred tax assets		194,323		116,136
Net deferred tax (liabilities) assets	$	(3,885)	$	2,166

We have $6.7 million of state net operating loss carryforwards available as of March 28, 2020. The state net operating loss carryforwards expire in varying amounts through 2040. Based on all available evidence, we have determined that it is more likely than not that sufficient taxable income of the appropriate character within the carryforward period will exist for the realization of the tax benefits on existing state net operating loss carryforwards.

We believe it is more likely than not that all other future tax benefits will be realized as a result of current and future income.

A reconciliation between the U.S. federal statutory tax rate and the effective tax rate reflected in the accompanying financial statements is as follows:



	Year Ended Fiscal March
	2020			2019			2018
	Amount		Percent	Amount		Percent	Amount		Percent
	(Dollars in thousands)
Federal income tax based on ‎ statutory tax rate applied ‎ to income before taxes (a)	$	15,597	21.0	$	21,076	21.0	$	32,692	31.6
State income tax, net of ‎ federal income tax benefit		1,374	1.9		2,767	2.8		2,218	2.1
Tax Act (b)		—	—		—	—		4,707	4.5
Tax settlements and adjustments		—	—		(1,864)	(1.9)		—	—
Other		(721)	(1.0)		(1,371)	(1.4)		(98)	—
	$	16,250	21.9	$	20,608	20.5	$	39,519	38.2

_________________

(a)For fiscal 2018, represents the blended rate of 35% for 9/12 of the year and 21% for 3/12 of the year.

(b)Represents the net discrete adjustment to income tax expense primarily from the remeasurement of our net deferred tax assets at the lower U.S. corporate income tax rate.

The following is a rollforward of Monro’s liability for income taxes associated with unrecognized tax benefits:



	Dollars in thousands
Balance at March 25, 2017	$	6,892
Tax positions related to current year:
Additions		447
Reductions		—
Tax positions related to prior years:
Additions		—
Reductions		(342)
Settlements		—
Lapses in statutes of limitations		(788)
Balance at March 31, 2018		6,209
Tax positions related to current year:
Additions		1,178
Reductions		—
Tax positions related to prior years:
Additions		166
Reductions		(6)
Settlements		—
Lapses in statutes of limitations		(1,123)
Balance at March 30, 2019		6,424
Tax positions related to current year:
Additions		644
Reductions
Tax positions related to prior years:
Additions
Reductions		(30)
Settlements
Lapses in statutes of limitations		(1,826)
Balance at March 28, 2020	$	5,212

The total amount of unrecognized tax benefits was $5.2 million and $6.4 million at March 28, 2020 and March 30, 2019, respectively, the majority of which, if recognized, would affect the effective tax rate.

In the normal course of business, Monro provides for uncertain tax positions and the related interest and penalties, and adjusts its unrecognized tax benefits and accrued interest and penalties and, accordingly, we had approximately $0.3 million and $0.4 million of interest and penalties associated with uncertain tax benefits accrued as of March 28, 2020 and March 30, 2019, respectively.

We file U.S. federal income tax returns and income tax returns in various state jurisdictions. Monro’s fiscal 2019 and 2018 U.S. federal tax year and various state tax years remain subject to income tax examinations by tax authorities.