|12 Months Ended
Jan. 02, 2021
Note 7 – Income Taxes
The components of loss from operations before income tax provision consist of the following:
Income tax provision for fiscal year 2020 and 2019 consists of the following:
Income tax provision differs from the amount that would result from applying the federal statutory rate as follows:
For fiscal year 2020 and 2019, the effective tax rate for the Company was (25.4)% and (212.0)%, respectively. The Company’s effective tax rate for fiscal year 2020 and 2019 differs from the U.S. federal rate primarily as a result of non-deductible share-based compensation, the write-off of expired state net operating loss carryforwards, and the change in the valuation allowance maintained against the Company’s deferred tax assets.
Deferred tax assets and deferred tax liabilities consisted of the following:
As of January 2, 2021, federal and state net operating loss (“NOL”) carryforwards were $83,386 and $76,120, respectively. Federal NOL carryforwards of $1,295 were acquired in the acquisition of WAG which are subject to Internal Revenue Code section 382 and limited to an annual usage limitation of $135. Federal NOL carryforwards begin to expire in 2029. The state NOL carryforwards expire in the respective tax years as follows:
Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversal of existing taxable temporary differences. ASC 740 provides that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years or losses expected in early future years. As of January 2, 2021, mainly due to cumulative losses in recent years, the Company maintained a valuation allowance in the amount of $30,516 against deferred tax assets that were not more likely than not of being realized.
We are subject to U.S. federal income tax as well as income tax of foreign and state tax jurisdictions. The tax years 2016‑2020 remain open to examination by the major taxing jurisdictions to which the Company is subject, except the Internal Revenue Service for which the tax years 2017‑2020 remain open. The Company does not anticipate a significant change to the amount of unrecognized tax benefits within the next twelve months.
Included in accrued expenses are income taxes payable of $119 and $33 as of January 2, 2021 and December 28, 2019, respectively, consisting primarily of current state and foreign taxes. Included in other non-current liabilities are income taxes payable of $702 and $662 as of January 2, 2021 and December 28, 2019, respectively, relating to accrued future foreign withholding taxes.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. Due to the existence of previously incurred losses, the NOL carryback provisions of the CARES Act did not result in a cash benefit to the Company, however, we do anticipate increased interest expense deductions for tax purposes in 2020 and 2021 as a result of the relaxation of the limitations on the deductibility of interest. On December 27, 2020, the Consolidated Appropriations Act (“CAA”) was enacted in further response to the COVID-19 pandemic, in combination with omnibus spending for the 2021 federal fiscal year. The CAA extended many of the provisions enacted by the CARES Act, the extension of which likewise did not have a material impact on the Company’s consolidated financial statements for the fiscal year ended January 2, 2021.