| Income Taxes | Note 6: Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Cuts
and Jobs Act (the “Tax Act”). The Tax Act contains
significant changes to corporate taxation, including a reduction of
the corporate tax rate from 35% to 21%, creating a territorial tax
system, allowing for immediate expensing of certain qualified
property, modifying or repealing many business deductions and
credits, implementing a deemed repatriation transition tax, and
providing other incentives. In response to the Tax Act, on
December 22, 2017, the SEC staff issued Staff Accounting
Bulletin No. 118 (“SAB 118”) to provide guidance
for companies that are not able to complete their accounting for
the income tax effects of the Tax Act in the period of enactment
and provides a measurement period that should not extend beyond one
year from the Tax Act enactment date for companies to complete the
accounting under ASC 740. In accordance with SAB 118, to the extent
that a company’s accounting for certain income tax effects of
the Tax Act is incomplete, but the company is able to determine a
reasonable estimate, the company must record a provisional
estimate. If a company cannot determine a provisional estimate, it
should continue to apply ASC 740 on the basis of the provisions of
the tax laws that were in effect immediately before the enactment
of the Tax Act.
Our accounting for the following elements of the Tax Act is
incomplete; however, we were able to make reasonable estimates of
certain effects and therefore, recorded provisional adjustments as
follows:
• The Tax Act reduced the corporate tax
rate to 21%, and we recorded a provisional tax benefit of $8,076
related to the re-measurement
• We currently plan to utilize an
election for the 2017 tax year to apply 100% bonus depreciation for
eligible property placed in service after September 27, 2017.
This amount is presented as provisional while we continue to review
the impact of 100% bonus depreciation.
• We were able to make reasonable
estimates of the impact on our tax provision from the changes to
deductions for executive compensation for the year ended
December 31, 2017. This amount is presented as provisional
while we continue to gather additional information to determine the
final impact of these changes.
We will finalize our analysis of the income tax effect of the Tax
Act by the fourth quarter of fiscal 2018. The final impact of the
Tax Act may differ from these current provisional amounts, due to,
among other things, changes in our interpretations and assumptions
of the Tax Act, and further regulatory guidance that may be issued
by the applicable tax authorities. As a result, we will continue to
gather additional information to determine the final impact of
these changes.
We have evaluated the impact of the deemed repatriation of deferred
foreign income and the associated foreign tax credit under the
relevant provision of the Tax Act. The deferred foreign income was
earned by our Canadian subsidiary, which owns only two stores, one
of which was opened in late 2016. The net impact is immaterial.
Additionally, due to the complexity of the new tax laws around
global intangible low-taxed
Our federal statutory rate for fiscal 2017 is 33.7%. This blended
rate is calculated based on the number of days in the fiscal year
before and after the effective date of the Tax Act.
The following table sets forth our provision for income taxes for
the fiscal years ended:
February 4, January 29, January 31,
Current provision:
Federal $ 35,195 $ 35,596 $ 18,342
State and local 9,112 10,107 5,810
Foreign (22 ) 72 126
Total current provision 44,285 45,775 24,278
Deferred provision (benefit):
Federal (5,697 ) 7,318 8,384
State and local (2,885 ) (287 ) (623 )
Foreign (263 ) (70 ) 92
Total deferred provision (benefit) (8,845 ) 6,961 7,853
Provision for income taxes $ 35,440 $ 52,736 $ 32,131
The following tables set forth the significant components of our
deferred assets and liabilities as of the fiscal years ended:
February 4, January 29,
Deferred tax assets:
Deferred revenue and redemption ticket liability $ 14,994 $ 18,318
Leasing transactions 12,891 13,735
Accrued liabilities 4,631 3,990
Workers compensation and general liability insurance 3,386 4,698
Share-based compensation 5,289 5,284
Net operating loss carryovers 3,715 2,040
Indirect benefit of unrecognized tax benefits 398 563
Other 2,626 3,108
Total 47,930 51,736
Valuation allowance (402 ) (821 )
Total deferred tax assets, net of valuation allowance 47,528 50,915
Deferred tax liabilities:
Trademark/tradename (21,413 ) (31,545 )
Property and equipment (25,797 ) (30,956 )
Other (2,742 ) (465 )
Total deferred tax liabilities (49,952 ) (62,966 )
Net deferred tax liabilities $ (2,424 ) $ (12,051 )
Reported as:
Deferred tax assets, net—noncurrent 7,789 2,446
Deferred tax liablities, net—noncurrent (10,213 ) (14,497 )
Net deferred tax liabilities $ (2,424 ) $ (12,051 )
At February 4, 2018, we had a valuation allowance of $402
against our deferred tax assets. The ultimate realization of our
deferred tax assets is dependent on the generation of future
taxable income in the jurisdiction and during periods in which
temporary differences become deductible. In assessing the
realizability of our deferred tax assets, we considered whether it
is more likely than not that some or all of the deferred tax assets
will not be realized. Based on the level of recent historical
taxable income, consistent generation of annual taxable income, and
estimations of future taxable income, we have concluded that it is
more likely than not that we will realize the federal tax benefits
associated with most of our deferred tax assets. We assessed the
realizability of the deferred tax assets associated with state
taxes, foreign taxes and uncertain tax positions and have concluded
that it is more likely than not that we will realize only a portion
of these benefits. Accordingly, we have established a valuation
allowance to reduce those deferred tax assets to an amount which we
believe will ultimately be realized.
As of February 4, 2018, we have $61,231 of state net operating
loss carryforwards. Generally, state net operating losses can be
carried forward 20 years. State net operating loss carryforwards
begin to expire in 2018.
The following table sets forth the change in unrecognized tax
benefits excluding interest, penalties and related income tax
benefits for the fiscal years ended:
February 4, 2018 January 29, 2017 January 31, 2016
Balance at beginning of year $ 1,348 $ 1,263 $ 566
Additions for tax positions of current year 290 240 711
Reductions for tax positions of prior years (31 ) (76 )
—
Lapse of statute of limitations (39 ) (79 ) (14 )
Balance at end of year $ 1,568 $ 1,348 $ 1,263
As of February 4, 2018 and January 29, 2017, the accrued
interest and penalties on the unrecognized tax benefits were $360
and $355, respectively, excluding any related income tax
benefits. The Company recorded accrued interest related to the
unrecognized tax benefits and penalties as a component of the
provision for income taxes recognized in the Consolidated
Statements of Comprehensive Income.
We currently anticipate that approximately $106 of unrecognized tax
benefits will be settled through federal and state audits or will
be recognized as a result of the expiration of statute of
limitations during fiscal 2018. Future recognition of potential
interest or penalties, if any, will be recorded as a component of
our income tax provision. Because of the impact of deferred tax
accounting, $1,530 of unrecognized tax benefits, if recognized,
would affect the effective tax rate.
The following table sets forth the reconciliation of the federal
statutory rate to the effective income tax rate for the fiscal
years ended:
February 4, 2018 January 29, 2017 January 31, 2016
Federal corporate statutory rate 33.7 % 35.0 % 35.0 %
State and local income taxes, net of federal income tax benefit 3.8 % 4.4 % 2.8 %
Foreign taxes (0.2 )% — % (0.1 )%
Nondeductible expenses 1.4 % 1.5 % 1.7 %
Tax credits (4.0 )% (4.1 )% (5.4 )%
Valuation allowance (0.3 )% (0.1 )% 0.1 %
Tax contingency reserves 0.1 % — % 0.8 %
Share-based compensation (7.3 )% — % — %
Impacts related to the Tax Act (5.1 )% — % — %
Other 0.6 % — % 0.1 %
Effective tax rate 22.7 % 36.7 % 35.0 %
We file consolidated income tax returns with all our domestic
subsidiaries, which are periodically audited by various federal,
state and foreign jurisdictions. We are currently under federal
audit by the Internal Revenue Service for fiscal 2015. We are
generally no longer subject to federal, state, or foreign income
tax examinations for years prior to 2013. |
