Income Taxes

12 Months Ended

Dec. 26, 2020

Income Taxes:

The provision for income taxes consists of the following (in thousands):


	Fiscal Year

	2020		2019		2018
Current tax expense:
Federal	$	211,228	$	128,490	$	123,388
State	38,511		25,091		15,597
Total current	249,739		153,581		138,985

Deferred tax (benefit)/expense:
Federal	(21,997)		11,770		9,650
State	(8,553)		(4,328)		2,393
Total deferred	(30,550)		7,442		12,043
Total provision	$	219,189	$	161,023	$	151,028

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax assets and liabilities are as follows (in thousands):


	December 26, 2020		December 28, 2019
Tax assets:
Inventory valuation	$	20,539	$	16,676
Accrued employee benefits costs	44,625		12,002
Accrued sales tax audit reserve	5,967		4,173
Finance lease liabilities	8,595		6,817
Operating lease liabilities	645,719		581,593
Deferred compensation	12,289		14,836
Workers’ compensation insurance	11,804		10,154
General liability insurance	7,346		6,025
Lease exit obligations	2,315		2,087
Income tax credits	8,744		6,377
Amortization	7,269		—
Other	8,431		5,768
	783,643		666,508
Tax liabilities:
Finance lease assets	(7,584)		(5,684)
Operating lease right-of-use assets	(612,658)		(551,751)
Inventory basis difference	(4,768)		(4,667)
Prepaid expenses	(2,491)		(2,024)
Depreciation	(124,280)		(93,919)
Amortization	—		(8,230)
Other	(276)		(386)
	(752,057)		(666,661)

Net deferred tax asset/(liability)	$	31,586	$	(153)

The Company has evaluated the need for a valuation allowance for all or a portion of the deferred tax assets. The Company believes that all of the deferred tax assets will more likely than not be realized through future earnings. The Company had state tax credit carryforwards of $8.6 million and $6.2 million as of December 26, 2020 and December 28, 2019, respectively, with varying dates of expiration through 2035. The Company provided no valuation allowance as of December 26, 2020 and December 28, 2019 for state tax credit carryforwards, as the Company believes it is more likely than not that all of these credits will be utilized before their expiration dates.

A reconciliation of the provision for income taxes to the amounts computed at the federal statutory rate is as follows (in thousands):


	Fiscal Year

	2020		2019		2018
Tax provision at statutory rate	$	203,311	$	151,909	$	143,511
Tax effect of:
State income taxes, net of federal tax benefits	27,642		19,722		18,019
Section 162(m) limitation	5,080		2,572		2,581
Tax credits, net of federal tax benefits	(8,828)		(7,768)		(7,140)
Share-based compensation programs	(9,303)		(4,484)		(4,522)

Other	1,287		(928)		(1,421)
Total income tax expense	$	219,189	$	161,023	$	151,028

The Company and its affiliates file income tax returns in the U.S. and various state and local jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years before 2016. Various states have completed an examination of our income tax returns for 2016 through 2018 with minimal adjustments.

The total amount of unrecognized tax positions that, if recognized, would decrease the effective tax rate, is $2.7 million at December 26, 2020. In addition, the Company recognizes current interest and penalties accrued related to these uncertain tax positions as interest expense, and the amount is not material to the Consolidated Statements of Income. The Company has considered the reasonably possible expected net change in uncertain tax positions during the next 12 months and does not expect any material changes to our liability for uncertain tax positions through December 25, 2021.

A reconciliation of the beginning and ending gross amount of unrecognized tax benefits (exclusive of interest and penalties) is as follows (in thousands):


	Fiscal Year
	2020		2019		2018
Balance at beginning of year	$	2,760	$	2,451	$	1,993
Additions based on tax positions related to the current year	816		650		621
Additions for tax positions of prior years	32		59		257
Reductions for tax positions of prior years	(372)		(400)		(420)
Balance at end of year	$	3,236	$	2,760	$	2,451

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the U.S. on March 27, 2020. The enactment of this legislation did not have a material impact on income tax expense in fiscal 2020. However, the Company did elect to participate in the deferral of the employer’s share of social security tax deposits, with $47.0 million included within other long-term liabilities in the Consolidated Balance Sheet as of December 26, 2020. The first half of this deferral will become due on December 31, 2021 and the second half will become due on December 31, 2022.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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