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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Taxes [Abstract]  
Income Taxes 6. Income Taxes

Income before income taxes, classified by source of income, was as follows:

Year ended December 31,

2023

2022

2021

Domestic

$

1,637,756

$

1,192,004

$

818,057

Foreign

(17,250)

(10,473)

(5,294)

Income before income taxes

$

1,620,506

$

1,181,531

$

812,763

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

Year ended December 31,

2023

2022

2021

Current tax:

U.S. Federal

$

(314,757)

$

(246,210)

$

(156,447)

U.S. State and Local

(85,355)

(79,041)

(15,351)

Foreign

(1,162)

(374)

(338)

(401,274)

(325,625)

(172,136)

Deferred tax:

U.S. Federal

7,992

23,502

33,004

U.S. State and Local

1,532

19,940

(20,404)

Foreign

7,606

(3,771)

7,229

17,130

39,671

19,829

Valuation allowance

(7,625)

3,524

(7,472)

Provision for income taxes

$

(391,769)

$

(282,430)

$

(159,779)

The effective tax rate differs from the statutory tax rates as follows:

Year ended December 31,

2023

2022

2021

Statutory U.S. federal income tax rate

21.0

%

21.0

%

21.0

%

State income tax, net of related federal income tax benefit

4.0

3.8

3.5

Federal tax credits

(1.0)

(1.0)

(1.6)

Executive compensation disallowed

0.8

0.8

2.9

Valuation allowance

0.3

0.2

0.3

Uncertain tax position reserves

0.4

0.3

-

Other

0.2

0.6

-

Return to provision and other discrete items

(0.2)

(0.1)

0.1

Equity compensation related adjustments

(1.3)

(1.7)

(4.7)

Federal net operating loss

-

-

(1.8)

Effective income tax rate

24.2

%

23.9

%

19.7

%

The effective tax rate for the year ended December 31, 2023, was higher than the effective tax rate for the year ended December 31, 2022, primarily due to a decrease in excess tax benefits related to option exercises and equity vesting in relation to income before taxes.

The components of the deferred income tax assets and liabilities for continuing operations were as follows:

December 31,

2023

2022

Deferred income tax liability:

Leasehold improvements, property and equipment, net

$

272,017

$

263,444

Goodwill and other assets

1,743

1,754

Operating lease assets

972,835

901,058

Total deferred income tax liability

1,246,595

1,166,256

Deferred income tax asset:

Gift card liability

18,101

15,893

Capitalized transaction costs

323

323

Stock-based compensation and other employee benefits

50,954

45,129

Foreign net operating loss carry-forwards

32,252

24,799

State credits

1,838

3,151

Operating lease liabilities

1,038,911

962,815

Allowances, reserves and other

12,870

15,688

Capitalized research costs

25,990

17,415

Prepaid assets and other

6,637

4,685

State net operating loss carry-forwards

4,332

4,832

Valuation allowance

(34,722)

(27,097)

Total deferred income tax asset

1,157,486

1,067,633

Deferred income tax liabilities

$

89,109

$

98,623

Gross foreign net operating losses (“NOLs”) were $149,891 and $114,727 as of December 31, 2023 and 2022, respectively. Our foreign NOLs can be carried forward indefinitely.

Gross state NOLs available across all jurisdictions in which we operate were $62,492 and $73,327 as of December 31, 2023 and 2022, respectively. Our state NOLs expire over varying intervals in the future.

We had gross valuation allowances against certain foreign deferred tax assets of $160,607 and $124,609 as of December 31, 2023 and 2022, respectively. The increase in the valuation allowance was primarily due to the recording of a valuation allowance on various foreign tax attributes.

Unrecognized Tax Benefits

A reconciliation of the unrecognized tax benefits was as follows:

Year ended December 31,

2023

2022

2021

Beginning of year

$

8,902

$

5,262

$

10,859

Increase resulting from prior year tax positions

7,561

3,937

180

Decrease resulting from prior year tax positions

(295)

-

(331)

Increase resulting from current year tax positions

783

312

1,387

Settlements with taxing authorities

(6)

-

-

Lapsing of statutes of limitations

(457)

(609)

(6,833)

End of year

$

16,488

$

8,902

$

5,262

Interest expense related to uncertain tax positions is recognized in interest and other income, net on the consolidated statements of income and comprehensive income. Penalties related to uncertain tax positions are recognized in provision for income taxes on the consolidated statements of income and comprehensive income. For the years ended December 31, 2023, 2022 and 2021, we recognized $1,541, $384 and $180, respectively, in interest expense related to uncertain tax positions. These are gross amounts before any tax benefits and are included in other liabilities on the consolidated balance sheets. As of December 31, 2023 and 2022, we have accrued interest of $2,026 and $589, respectively.

The Internal Revenue Service (“IRS”) commenced an examination of our U.S. income tax returns for the tax year ended December 31, 2020 in the fourth quarter of 2022. The exam is still in progress. As of December 31, 2023, the IRS has not proposed any adjustments to our tax positions.

Our tax returns are currently under audit by the State of Pennsylvania for the tax years ended December 31, 2019, December 31, 2020 and December 31, 2021. As of December 31, 2023, the State of Pennsylvania has not proposed any adjustments to our tax positions. For the majority of states where we have a significant presence, we are no longer subject to tax examinations by tax authorities for tax years before 2019. Currently, we expect expirations of statutes of limitations, excluding indemnified amounts, on reserves of approximately $481 within the next twelve months.

It is reasonably possible the amount of the unrecognized benefit with respect to certain unrecognized positions could significantly increase or decrease within the next twelve months and would have an impact on net income.

Inflation Reduction Act of 2022

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes provisions imposing a 15% alternative corporate minimum tax (“CAMT”), and a 1% excise tax on net stock repurchases made by publicly traded U.S. corporations, which are effective in taxable years beginning after December 31, 2022. The CAMT does not apply to the Company and the excise tax is immaterial to our financial statements as of December 31, 2023.