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INCOME TAXES | 12 Months Ended
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Dec. 27, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Shake Shack is the sole managing member of SSE Holdings and, as a result, consolidates 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 the Company, on a pro rata basis. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its 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. The Company is also subject to withholding taxes in foreign jurisdictions. Income Tax Expense The components of Income (loss) before income taxes were as follows:
|  |  | (As Restated) |  | (As Restated)
| 2023 |  | 2022 |  | 2021
Domestic | $ | (13,427) |  |  | $ | (49,454) |  |  | $ | (38,833) |
Foreign | 30,407 |  |  | 25,169 |  |  | 21,498 |
Income (loss) before income taxes | $ | 16,980 |  |  | $ | (24,285) |  |  | $ | (17,335) |
The components of Income tax benefit were as follows:
|  |  |  |  | (As Restated) |  | (As Restated)
|  |  | 2023 |  | 2022 |  | 2021
Current income taxes: |  |  |  |  |
| Federal | $ | — |  |  | $ | — |  |  | $ | — |
| State and local | 1,271 |  |  | 222 |  |  | 275 |
| Foreign | 3,793 |  |  | 3,612 |  |  | 2,880 |
| Total current income taxes | 5,064 |  |  | 3,834 |  |  | 3,155 |
Deferred income taxes: |  |  |  |  |
| Federal | (12,427) |  |  | (4,176) |  |  | (10,732) |
| State and local | 3,353 |  |  | (838) |  |  | (3,741) |
| Total deferred income taxes | (9,074) |  |  | (5,014) |  |  | (14,473) |
Income tax benefit | $ | (4,010) |  |  | $ | (1,180) |  |  | $ | (11,318) |
Reconciliations of Income tax benefit computed at the U.S. federal statutory income tax rate to the recognized Income tax benefit and the U.S. statutory income tax rate to our effective tax rates were as follows:
|  |  |  |  | (As Restated) |  | (As Restated)
|  | 2023 |  | 2022 |  | 2021
Expected U.S. federal income taxes at statutory rate | $ | 3,565 |  | 21.0 | % |  | $ | (5,100) |  | 21.0 | % |  | $ | (3,641) |  | 21.0 | %
State and local income taxes, net of federal benefit | 2,429 |  | 14.3 | % |  | (759) |  | 3.1 | % |  | (1,578) |  | 9.1 | %
Foreign withholding taxes | 3,792 |  | 22.3 | % |  | 3,612 |  | (14.9) | % |  | 2,880 |  | (16.6) | %
Tax credits | (7,060) |  | (41.5) | % |  | (5,969) |  | 24.6 | % |  | (3,655) |  | 21.1 | %
Non-controlling interest | 517 |  | 3.0 | % |  | 122 |  | (0.5) | % |  | (350) |  | 2.0 | %
Remeasurement of deferred tax assets in connection with other tax rate changes | 1,547 |  | 9.1 | % |  | 225 |  | (0.9) | % |  | 1,034 |  | (6.0) | %
Reserve for uncertain tax positions | 154 |  | 0.9 | % |  | — |  | — | % |  | — |  | — | %
Change in valuation allowance | (9,195) |  | (54.2) | % |  | 4,955 |  | (20.4) | % |  | (6,059) |  | 35.0 | %
Other | 241 |  | 1.4 | % |  | 1,734 |  | (7.1) | % |  | 51 |  | (0.3) | %
Income tax benefit | $ | (4,010) |  | (23.6) | % |  | $ | (1,180) |  | 4.9 | % |  | $ | (11,318) |  | 65.3 | %
Shake Shack's effective income tax rates for fiscal 2023, fiscal 2022 and fiscal 2021 were (23.6)%, 4.9% and 65.3%, respectively. The decrease in the effective income tax rate from fiscal 2022 to fiscal 2023 was primarily driven by additional benefit related to a decrease in valuation allowance and higher tax credits, partially offset by an increase in foreign tax expense and the revaluation of deferred tax assets as a result of a reduction in certain state income tax rates. The decrease in the effective income tax rate from fiscal 2021 to fiscal 2022 was primarily driven by additional expense related to an increase in valuation allowance, an increase in foreign tax expense, and net expense related to equity-based compensation, partially offset by higher tax credits. Deferred Tax Assets and Liabilities The components of deferred tax assets and liabilities were as follows:
|  |  |  |  | (As Restated)
|  |  | December 27 2023 |  | December 28 2022
Deferred tax assets: |  |  |
| Investment in partnership | $ | 90,419 |  |  | $ | 109,870 |
| Tax Receivable Agreement | 64,076 |  |  | 64,218 |
| Operating lease liability | 4,713 |  |  | 4,376 |
| Financing lease liability | 114 |  |  | 61 |
| Deferred revenue | 196 |  |  | 167 |
| Equity-based compensation | 360 |  |  | 380 |
| Net operating loss carryforwards | 144,144 |  |  | 131,867 |
| Tax credits | 26,048 |  |  | 19,257 |
| Other assets | 947 |  |  | 638 |
| Total gross deferred tax assets | 331,017 |  |  | 330,834 |
Valuation allowance | (357) |  |  | (9,560) |
Total deferred tax assets, net of valuation allowance | 330,660 |  |  | 321,274 |
Deferred tax liabilities: |  |  |
| Property and equipment | (599) |  |  | (95) |
| Operating lease right-of-use asset | (3,735) |  |  | (3,488) |
| Financing lease right-of-use asset | (111) |  |  | (58) |
| Other liabilities | (7) |  |  | (7) |
| Total gross deferred tax liabilities | (4,452) |  |  | (3,648) |
Net deferred tax assets | $ | 326,208 |  |  | $ | 317,626 |
As of December 27, 2023, the Company's federal and state net operating loss carryforwards for income tax purposes were $596,347 and $327,152, respectively. If not utilized, $544,480 of the Company's federal net operating losses can be carried forward indefinitely, and the remainder will begin to expire in 2035. If not utilized $49,912 of the Company's state net operating loss carryforwards can be carried forward indefinitely, and the remainder will begin to expire in 2024. As of December 27, 2023, the Company had federal tax credit carryforwards of $25,727 which will begin to expire in 2025 and gross state tax credit carryforwards of $406 which will begin to expire in 2024. As described in Note 12, Stockholders' Equity, the Company acquired an aggregate of 189,317 LLC Interests during fiscal 2023 through redemption of LLC Interests and activity under stock-based compensation plans. The Company recognized a deferred tax liability in the amount of $720 associated with the basis difference in its investment in SSE Holdings upon acquisition of these LLC Interests. As of December 27, 2023, the total deferred tax asset related to the basis difference in the Company's investment in SSE Holdings was $90,419. The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes 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 27, 2023, the Company concluded, based on the weight of all available positive and negative evidence, that all of its deferred tax assets are more likely than not to be realized, except certain state attributes that are not expected to be utilized before expiration. As such, a valuation allowance in the amount of $357 was recognized. The net change in valuation allowance for fiscal 2023 was a decrease of $9,201 primarily related to the change in realizability of foreign tax credits. Refer to Schedule II, Valuation and Qualifying Accounts for additional information. Uncertain Tax Positions As of December 27, 2023, the Company assessed its tax positions by applying the two-step recognition and measurement model pursuant to ASC 740 and considering the applicable unit of account. Pursuant to ASC 740-10-25-6, the Company recognizes the financial statement effects of a tax position only when it is more likely than not that the position will be sustained upon examination. At the conclusion of the Company's examination in New York City for tax years 2015 -2017, a reserve of $207 was recognized based on a settlement with the taxing authority. In addition, the Company recognized an uncertain tax reserve of $195 for tax years 2018-2022. Reconciliations of uncertain tax positions were as follows:
|  |  | (As Restated) |  | (As Restated)
| 2023 |  | 2022 |  | 2021
Beginning balance | $ | — |  |  | $ | — |  |  | $ | — |
Additions based on tax positions related to the current year | — |  |  | — |  |  | — |
Additions for tax positions of prior years | 263 |  |  | — |  |  | — |
Reductions for tax positions of prior years | — |  |  | — |  |  | — |
Reductions for lapse of applicable statute of limitations | — |  |  | — |  |  | — |
Settlements | (116) |  |  | — |  |  | — |
Ending balance | $ | 147 |  |  | $ | — |  |  | $ | — |
The Company does not expect a significant increase or decrease in unrecognized tax benefits within the next twelve months. The $147 of unrecognized tax benefits, if recognized, would favorably affect the Company’s effective tax rate. Interest and penalties, if any, related to income tax liabilities are included in income tax expense. During the fiscal year ended December 27, 2023, the Company recognized $139 in interest expense. As of December 27, 2023, the Company accrued $48 of interest expense. Shake Shack Inc. was formed in September 2014 and did not engage in any operations prior to the IPO and other transactions completed in connection with the IPO. 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 2019 for SSE Holdings. Tax Receivable Agreement Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company expects to obtain an increase in its share of the tax basis in the net assets of SSE Holdings when LLC Interests are redeemed or exchanged by the other members of SSE Holdings. The Company plans to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interest occurs. The Company intends to treat any redemptions and exchanges of LLC Interests as direct purchases of LLC Interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that would otherwise be paid 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, the Company entered into a tax receivable agreement with certain of the then-existing members of SSE Holdings (the "Tax Receivable Agreement") that provides for the payment by the Company of 85% of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of (i) increases in the Company's 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"). The Company expects to benefit from the remaining 15% of any tax benefits that may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or the Company. The rights of each member of SSE Holdings that is a party to the Tax Receivable Agreement, are assignable to transferees of their respective LLC Interests. During fiscal 2023, the Company acquired an aggregate of 35,000 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. The Company recognized an additional liability in the amount of $720 for the TRA Payments due to the redeeming members, representing 85% of the aggregate tax benefits the Company expects 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 estimates of future taxable income. No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement in fiscal 2023 and fiscal 2022. As of December 27, 2023, the total amount of TRA Payments due under the Tax Receivable Agreement was $235,613, of which no amount was included in Other current liabilities on the Consolidated Balance Sheets. Refer to Note 18, Commitments and Contingencies, for additional information relating to the liabilities under the Tax Receivable Agreement.

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