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. 28, 2014

INCOME TAXES

The provision for federal and state income taxes for the years ended December 28, 2014, December 29, 2013 and December 30, 2012 consisted of the following:



	2014		2013		2012
Current Income Tax Expense
Federal	$	—	$	—	$	—
State	713		775		483
Total current income tax expense	713		775		483
Deferred income tax expense
Federal	3,506		3,216		1,552
State	118		205		208
Total deferred income tax expense	3,624		3,421		1,760
Total income tax expense	$	4,337	$	4,196	$	2,243

Temporary difference between tax and financial reporting basis of assets and liabilities that give rise to the deferred income tax assets (liabilities) and their related tax effects as of December 28, 2014 and December 29, 2013 are as follows:



	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	643		$	4,571
Accrued liabilities	536			363
General business credits	10,121			7,582
Stock-based compensation	856			536
Other	168			107
Total deferred tax assets	12,324			13,159
Deferred tax liability:
Intangibles	(8,157		)	(7,123		)
Prepaid expenses	(590		)	(384		)
Property and equipment	(10,784		)	(9,773		)
Other	—			(26		)
Total deferred tax liabilities	(19,531		)	(17,306		)
Net deferred liabilities	$	(7,207	)	$	(4,147	)

The Company’s net operating loss carry forward of $1.9 million at December 28, 2014 will expire between 2028 and 2031. We have approximately $1.7 million and $11.0 million of tax benefits ($0.6 million and $4.0 million net of tax, respectively) related to excess stock compensation which were recorded to additional paid-in-capital during the fiscal years ended December 28, 2014 and December 29, 2013, respectively. Under the "tax law ordering" method, as described in ASC 740, these amounts were also used as a tax deductions and reduced the amount of net operating loss carry forward utilized during the fiscal years ended December 28, 2014 and December 29, 2013, respectively. As of December 28, 2014, the Company has general business tax credits of $10.1 million expiring in 2033.

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 are 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 effective income tax expense differs from the federal statutory tax expense for the fiscal years ended December 28, 2014, December 29, 2013 and December 30, 2012 as follows:



	2014			2013			2012
Expected income tax expense	$	5,382		$	5,191		$	2,618
State tax expense, net of federal benefit	548			647			456
Non-deductible compensation	863			711			457
FICA tip credit	(2,539		)	(2,092		)	(1,342		)
Other	83			(261		)	54
Income tax expense	$	4,337		$	4,196		$	2,243

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 28, 2014 and December 29, 2013 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. The Company is currently open to audit under the statute of limitations by the IRS for the years ended December 26, 2010 through December 28, 2014.

There was a decrease in the effective income tax expense during the year ended December 29, 2013 which was primarily attributable to the favorable impact of a one time adjustment made for incremental employment tax credits for that year as well as the previous open tax years, which resulted in a $556,000 net favorable impact on net income during the year ended December 29, 2013. The decrease in the income tax expense was partially offset by the unfavorable impact of the non-tax deductible secondary offering costs incurred during the year ended December 29, 2013.

Since the Company has net operating loss carry forwards, the net favorable tax benefit mentioned above will primarily increase the general business credits deferred tax asset.

- 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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