We are the sole managing member of SSE Holdings, and as a result, consolidate the financial results of SSE Holdings. SSE Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, SSE Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc. We are also subject to withholding taxes in foreign jurisdictions.


		2020		2019		2018
Current income taxes:
	Federal	$	—	$	2,984	$	5,281
	State and local	190		4,283		858
	Foreign	1,223		2,183		1,935
	Total current income taxes	1,413		9,450		8,074
Deferred income taxes:
	Federal	(12,638)		(5,643)		(210)
	State and local	11,282		(421)		998
	Total deferred income taxes	(1,356)		(6,064)		788
Income tax expense		$	57	$	3,386	$	8,862


	2020				2019				2018
Expected U.S. federal income taxes at statutory rate	$	(9,550)	21.0	%	$	5,778	21.0	%	$	6,470	21.0	%
State and local income taxes, net of federal benefit	5,776		(12.7)	%	3,924		14.2	%	797		2.6	%
Foreign withholding taxes	1,223		(2.7)	%	2,183		7.9	%	1,935		6.3	%

Tax credits	(1,533)		3.4	%	(3,007)		(10.9)	%	(2,151)		(7.0)	%
Non-controlling interest	537		(1.2)	%	(1,405)		(5.1)	%	(1,908)		(6.2)	%


Remeasurement of deferred tax assets in connection with other tax rate changes	5,433		(11.9)	%	208		0.8	%	3,794		12.3	%

Change in valuation allowance	(2,264)		5.0	%	(4,669)		(17.0)	%	—		—	%
Other	435		(1.0)	%	374		1.4	%	(75)		(0.2)	%
Income tax expense	$	57	(0.1)	%	$	3,386	12.3	%	$	8,862	28.8	%

Our effective income tax rates for fiscal 2020, fiscal 2019 and fiscal 2018 were (0.1)%, 12.3% and 28.8%, respectively. The decrease in our effective income tax rate from fiscal 2019 to fiscal 2020 was primarily driven by lower tax rates for foreign and state taxes mainly in connection with lower pre-tax book income and remeasurement of deferred tax assets, partially offset by lower tax credits and an increase in valuation allowance. The decrease in our effective income tax rate from fiscal 2018 to fiscal 2019 was primarily due to higher tax credits, an increase in windfall benefits from equity-based compensation and a decrease in valuation allowance, partially offset by an increase in our ownership of SSE Holdings, which increases our share of taxable income of SSE Holdings.


		December 30 2020		December 25 2019
Deferred tax assets:
	Investment in partnership	$	139,379	$	179,363
	Tax Receivable Agreement	63,853		65,679

	Operating lease liability	3,470		4,768
	Financing lease liability	51		78
	Deferred revenue	141		199
	Equity-based compensation	331		347
	Net operating loss carryforwards	75,522		26,058
	Tax credits	9,610		8,419
	Other assets	457		398
	Total gross deferred tax assets	292,814		285,309
Valuation allowance		(2,656)		(954)
Total deferred tax assets, net of valuation allowance		290,158		284,355
Deferred tax liabilities:
	Property and equipment	(300)		(585)
	Operating lease right-of-use asset	(2,802)		(3,876)
	Financing lease right-of-use asset	(49)		(77)
	Total gross deferred tax liabilities	(3,151)		(4,538)
Net deferred tax assets		$	287,007	$	279,817

As of December 30, 2020, our federal and state net operating loss carryforwards for income tax purposes were $313,940 and $183,829. If not utilized, $262,073 of our federal net operating losses can be carried forward indefinitely, and the remainder will begin to expire in 2035. If not utilized $40,695 of our state net operating loss carryforwards can be carried forward indefinitely, and the remainder will begin to expire in 2023. As of December 30, 2020, we had federal tax credit carryforwards of $9,002 which will begin to expire in 2025 and state tax credits of $608 which have an indefinite carryforward period.

As described in Note 12, Stockholders' Equity, we acquired an aggregate of 650,951 LLC Interests during fiscal 2020 through redemptions of LLC Interests and activity under stock-based compensation plans. We recognized a deferred tax asset in the amount of $8,609 associated with the basis difference in our investment in SSE Holdings upon acquiring these LLC Interests. As of December 30, 2020, the total deferred tax asset related to the basis difference in our investment in SSE Holdings was $139,379. However, a portion of the total basis difference will only reverse upon the eventual sale of our interest in SSE Holdings, which we expect would result in a capital loss. During fiscal 2020, the total valuation allowance established against this deferred tax asset to which it relates was $77.

During fiscal 2020, we also recognized $1,106 of deferred tax assets, and other loss of $1,147, related to additional tax basis changes generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments. See "—Tax Receivable Agreement" for more information.

We evaluate the realizability of our deferred tax assets on a quarterly basis and establish valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of December 30, 2020, we concluded, based on the weight of all available positive and negative evidence, that all of our deferred tax assets (except for those deferred tax assets described above relating to basis differences that expected to result in a capital loss upon the eventual sale of our interest in SSE Holdings) are more likely than not to be realized, except for tax credits related to New York City UBT and certain foreign

There were no reserves for uncertain tax positions as of December 30, 2020 and December 25, 2019. Shake Shack Inc. was formed in September 2014 and did not engage in any operations prior to the IPO and Organizational Transactions. The statute of limitations remains open for tax years beginning in 2015 for Shake Shack Inc. Additionally, although SSE Holdings is treated as a partnership for U.S. federal and state income taxes purposes, it is still required to file an annual U.S. Return of Partnership Income, which is subject to examination by the Internal Revenue Service ("IRS"). The statute of limitations has expired for tax years through 2016 for SSE Holdings.

Pursuant to our election under Section 754 of the Internal Revenue Code (the "Code"), we expect to obtain an increase in our share of the tax basis in the net assets of SSE Holdings when LLC Interests are redeemed or exchanged by the non-controlling interest holders and other qualifying transactions. We plan to make an election under Section 754 of Code for each taxable year in which a redemption or exchange of LLC Interest occurs. We intend to treat any redemptions and exchanges of LLC Interests by the non-controlling interest holders as direct purchases of LLC Interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

On February 4, 2015, we entered into a tax receivable agreement with the then-existing non-controlling interest holders (the "Tax Receivable Agreement") that provides for the payment by us to the non-controlling interest holders of 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments"). We expect to benefit from the remaining 15% of any tax benefits that we may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or us. The rights of each non-controlling interest holder under the Tax Receivable Agreement are assignable to transferees of its LLC Interests.

During fiscal 2020, we acquired an aggregate of 194,009 LLC Interests in connection with the redemption of LLC Interests that resulted in an increase in the tax basis of our investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. We recognized an additional liability in the amount of $4,024 for the TRA Payments due to the redeeming members, representing 85% of the aggregate tax benefits we expect to realize from the tax basis increases related to the redemption of LLC Interests, after concluding it was probable that such TRA Payments would be paid based on our estimates of future taxable income. During fiscal 2020 payments of $6,643, inclusive of interest, were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement. Payments of $707 were made to members of SSE Holdings pursuant to the Tax Receivable Agreement during fiscal 2019. As of December 30, 2020, the total amount of TRA Payments due under the Tax Receivable Agreement was $232,954, of which no amount was included in Other current liabilities on the Consolidated Balance Sheet. See Note 18, Commitments and Contingencies, for more information relating to our liabilities under the Tax Receivable Agreement.