CarParts.com, 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

Jan. 03, 2015

The components of loss before income tax provision consist of the following:



	Fiscal Year Ended
	January 3, 2015			December 28, 2013			December 29, 2012
Domestic operations	$	(7,424	)	$	(16,155	)	$	(37,469	)
Foreign operations	476			564			554
Total loss before income taxes	$	(6,948	)	$	(15,591	)	$	(36,915	)

Income tax (benefit) provision for fiscal year 2014, 2013 and 2012 consists of the following:



	Fiscal Year Ended
	January 3, 2015			December 28, 2013			December 29, 2012
Current:
Federal tax	$	—		$	—		$	—
State tax	(15		)	20			14
Foreign tax	78			(37		)	(76		)
Total current taxes	63			(17		)	(62		)
Deferred:
Federal tax	(2,232		)	(5,260		)	(12,612		)
State tax	(125		)	(1,353		)	(2,618		)
Foreign tax	74			60			275
Total deferred taxes	(2,283		)	(6,553		)	(14,955		)
Valuation allowance	2,358			6,613			14,080
Income tax (benefit) provision	$	138		$	43		$	(937	)

Income tax (benefit) provision differs from the amount that would result from applying the federal statutory rate as follows:



	January 3, 2015			December 28, 2013			December 29, 2012
Income tax at U.S. federal statutory rate	$	(2,362	)	$	(5,301	)	$	(12,551	)
Share-based compensation	33			43			38
State income tax, net of federal tax effect	(143		)	(1,348		)	(2,528		)
Foreign tax	117			70			(27		)
Other	127			(42		)	51
Change in valuation allowance	2,366			6,621			14,080
Effective tax (benefit) provision	$	138		$	43		$	(937	)

For fiscal year 2014, 2013 and 2012, the effective tax rate for the Company was (2.0)%, (0.3)% and 2.5%, respectively. The Company’s effective tax rate for fiscal years presented differs from the U.S. federal rate primarily as a result of the recording valuation allowances against the Company’s deferred tax assets.

Deferred tax assets and deferred tax liabilities consisted of the following:



	January 3, 2015			December 28, 2013
Deferred tax assets:
Inventory and inventory related allowance	$	1,334		$	1,075
Share-based compensation	5,248			4,545
Amortization	11,805			13,704
Sales and bad debt allowances	472			583
Vacation accrual	264			374
Book over tax amortization	10			377
Net operating loss and AMT credit carry-forwards	26,186			23,114
Other	807			388
Total deferred tax assets	46,126			44,160
Valuation Allowance	(45,867		)	(43,509		)
Net deferred tax assets	259			651
Deferred tax liabilities:
Investment in subsidiary	1,335			—
Tax over book depreciation	79			784
Foreign tax withholdings	409			—
Prepaid catalog expenses	180			202
Total deferred tax liabilities	2,003			986
Net deferred tax liabilities	$	(1,744	)	$	(335	)

At January 3, 2015, federal and state net operating loss (“NOL”) carryforwards were $57,552 and $73,610, respectively. Federal NOL carryforwards of $2,690 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. Additionally, the tax benefit of $41 of the federal and state NOL carryforwards which was created by the exercise of stock options will be credited to additional paid-in-capital once recognized. Federal NOL carryforwards begin to expire in 2029, while state NOL carryforwards begin to expire in 2015. The state NOL carryforwards expire in the respective tax years as follows:



2015-2022	$	40,553
2023-2032	33,057
Total	$	73,610

On October 8, 2014, AutoMD sold seven million shares of its common stock to third-party investors, reducing the Company’s ownership interest in AutoMD to 64.1%. AutoMD will no longer be included in the consolidated state and federal tax filings of the Company. As a result of the investment a deferred tax liability of $1,335 was created which reduced the increase in additional paid-in-capital which was created as a result of the investment. For the fiscal year ended January 3, 2015, the effective tax rate for AutoMD was (0.2)%. AutoMD's effective tax rate differs from the U.S. federal statutory rate primarily as a result of the recording of a $195 valuation allowance against the Company's net deferred tax assets. At January 3, 2015, AutoMD had net operating loss carryforwards (NOLs) of approximately $2,582 for federal tax purposes that begin to expire in 2031. AutoMD state NOLs were not material as of January 3, 2015.

The valuation allowance for deferred tax assets recorded during fiscal year 2014 and 2013 is based on a more likely than not threshold. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. We considered the following possible sources of taxable income when assessing the realization of deferred tax assets:


•	Future reversals of existing taxable temporary differences;


•	Future taxable income exclusive of reversing temporary differences and carryforwards;


•	Taxable income in prior carryback years; and


•	Tax-planning strategies.

Under the provisions of ASC 740, “Income Taxes”, 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. Based on this evaluation, as of January 3, 2015, a valuation allowance of $45,867 has been recorded against our deferred tax assets.

If, in the future, we generate taxable income on a sustained basis in jurisdictions where we have recorded full valuation allowances, our conclusion regarding the need for full valuation allowances in these tax jurisdictions could change, resulting in the reversal of some or all of the valuation allowances. If our operations generate taxable income prior to reaching profitability on a sustained basis, we would reverse a portion of the valuation allowance related to the corresponding realized tax benefit for that period, without changing our conclusions on the need for a full valuation allowance against the remaining net deferred tax assets.

Included in accrued expenses are income taxes payable of $33 and $26 for the fiscal year 2014 and 2013 respectively, consisting primarily of foreign taxes.

- 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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