Chuy's Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 30, 2018

The provision for federal and state income taxes for the years ended December 30, 2018, December 31, 2017 and December 25, 2016 consisted of the following:



	2018			2017			2016
Current:
Federal	$	435		$	972		$	2,933
State	1,048			859			613
Total current income tax expense	1,483			1,831			3,546
Deferred:
Federal	(3,643		)	(7,761		)	2,827
State	(194		)	430			661
Total deferred income tax (benefit) expense	(3,837		)	(7,331		)	3,488
Total income tax (benefit) expense	$	(2,354	)	$	(5,500	)	$	7,034

In December 2017, the U.S. government enacted the Tax Cuts and Jobs Act ("Tax Act"). The Tax Act impacts the Company in many ways, most notably by a reduction in the federal statutory tax rate from 35% to 21% effective January 1, 2018. As a result of this change, we were required to revalue our deferred tax balances at the 21% rate, resulting in a non-recurring deferred tax balance adjustment with a corresponding decrease to the provision for income taxes of $11.7 million in the fourth quarter of 2017. The company recognized the income tax effects of the Tax Act in accordance with Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance relating to the application of ASC Topic 740, Income Taxes, in the reporting period in which the Tax Act was signed into law. As of December 30, 2018 we have completed our accounting for the tax effects of the Tax Act with no significant changes to our income tax provision.

Temporary differences between tax and financial reporting basis of assets and liabilities which give rise to the deferred income tax assets (liabilities) and their related tax effects as of December 30, 2018 and December 31, 2017 are as follows:



	2018			2017
Deferred tax assets:
Accrued liabilities	$	13,610		$	12,819
General business tax credits	16,048			13,653
Stock-based compensation	1,005			1,024
Other	213			238
Total deferred tax assets	30,876			27,734
Deferred tax liability:
Intangibles	(7,996		)	(7,394		)
Prepaid expenses	(1,358		)	(1,339		)
Property and equipment	(24,123		)	(25,439		)
Total deferred tax liabilities	(33,477		)	(34,172		)
Deferred tax liabilities, net	$	(2,601	)	$	(6,438	)

Deferred tax balances were measured using a 21% federal statutory rate. As of December 30, 2018, the Company has general business tax credits of $16.0 million expiring in 2035.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred taxes will not be realized. Both positive and negative evidence is considered in forming management’s judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. The tax benefits relating to any reversal of the valuation allowance on the deferred tax assets would be recognized as a reduction of future income tax expense. The Company believes that it will realize all of the deferred tax assets. Therefore, no valuation allowance has been recorded.

The following is a reconciliation of the expected federal income taxes at the statutory rates of 21% for the fiscal year ended December 30, 2018 and 35% for the fiscal years ended December 31, 2017 and December 25, 2016 to the actual provision for income taxes:



	2018			2017			2016
Expected income tax expense	$	669		$	8,210		$	8,497
State tax expense, net of federal benefit	675			838			829
FICA tip credit	(3,411		)	(2,250		)	(1,936		)
Deferred tax balance adjustment	173			(11,696		)	—
Other	(460		)	(602		)	(356		)
Income tax (benefit) expense	$	(2,354	)	$	(5,500	)	$	7,034

Federal tax standards require that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e. a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. A recognized tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The standards also require that changes in judgment that result in subsequent recognition, derecognition or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the interim period in which the change occurs. As of December 30, 2018 and December 31, 2017 the Company recognized no liability for uncertain tax positions.

It is the Company’s policy to include any penalties and interest related to income taxes in its income tax provision. However, the Company currently has no penalties or interest related to income taxes.