v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Taxes [Line Items]  
Income Taxes Income Taxes
 
Summit Inc.’s tax provision includes its proportional share of Summit Holdings’ tax attributes. Summit Holdings’ subsidiaries are primarily limited liability companies, but do include certain entities organized as C corporations and a Canadian subsidiary. The tax attributes related to the limited liability companies are passed on to Summit Holdings and then to its partners, including Summit Inc. The tax attributes associated with the C corporation and Canadian subsidiaries are fully reflected in the Company’s consolidated financial statements. For the years ended December 31, 2022, January 1, 2022 and January 2, 2021, income taxes consisted of the following:
 
 202220212020
Provision for income taxes:   
Current$15,654 $8,030 $3,827 
Deferred69,891 36,326 (16,012)
Income tax expense (benefit)$85,545 $44,356 $(12,185)
 
The effective tax rate on pre-tax income differs from the U.S. statutory rate of 21% for 2022, 2021 and 2020, respectively, due to the following:
 202220212020
Income tax expense (benefit) at federal statutory tax rate$75,862 $41,273 $27,100 
Less: Income tax benefit at federal statutory tax rate for LLC entities(754)(459)(593)
State and local income taxes12,703 7,287 5,067 
Permanent differences(7,039)(5,493)(3,345)
Effective tax rate change(710)2,317 4,257 
Basis differences from divestitures 3,314 3,766 — 
Unrecognized tax benefits— — (41,548)
Tax receivable agreement (benefit) expense218 28 (6)
Change in valuation allowance(562)— — 
Other2,513 (4,363)(3,117)
Income tax expense (benefit)$85,545 $44,356 $(12,185)

The following table summarizes the components of the net deferred income tax asset (liability) as December 31, 2022 and January 1, 2022: 
 20222021
Deferred tax assets (liabilities):  
Net intangible assets$138,511 $177,220 
Accelerated depreciation(196,936)(199,357)
Net operating loss195,669 224,014 
Investment in limited partnership(44,690)(38,548)
Mining reclamation reserve3,213 3,341 
Working capital (e.g., accrued compensation, prepaid assets)39,231 39,571 
Interest expense limitation carryforward3,101 — 
Less valuation allowance(1,113)(1,675)
Deferred tax assets136,986 204,566 
Less foreign deferred tax liability (included in other noncurrent liabilities)(15,752)(16,939)
Net deferred tax asset$121,234 $187,627 
 
As of December 31, 2022, $363.9 million of our deferred tax assets subject to our TRA are included in the net intangible assets and the net operating loss line items above.
 
Our income tax expense (benefit) was $85.5 million, $44.4 million and $(12.2) million in the fiscal years ended 2022, 2021 and 2020, respectively. Our effective income tax rate in 2021 and 2020 was impacted by the IRS interpretative guidance of the Tax Cuts and Jobs Act (the “TCJA”), a change in state tax rates and a change in the amount of our TRA liability.
 
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible, as well as consideration of tax-planning strategies we may seek to utilize net operating loss carryforwards that begin to expire in 2030. The Company updates the analysis, and adjusted the valuation allowance for interest expense carryforwards limited under the TCJA based on updated forecast models each year.
We had no unrecognized tax benefits as of December 31, 2022 and January 1, 2022, respectively. We did not recognize interest or penalties related to this amount as it is offset by other attributes.
 
Our net operating loss carryforward deferred tax assets begin to expire in 2030 and are expected to reverse before expiration. Therefore, we have not given consideration to any potential tax planning strategies as a source of future taxable income to monetize those net operating loss carryforwards. The Company will continue to monitor facts and circumstances, including our analysis of other sources of taxable income, in the reassessment of the likelihood that the tax benefit of our deferred tax assets will be realized.
     
As of December 31, 2022, Summit Inc. had federal net operating loss carryforwards of $813 million, a portion of which expire between 2030 and 2038. As of December 31, 2022, $660 million of our federal net operating losses were under the terms of our TRA. As of December 31, 2022 and January 1, 2022, Summit Inc. had a valuation allowance on net deferred tax assets of $1.1 million and $1.7 million, respectively, where realization of our net operating losses are not more likely than not.
 20222021
Valuation Allowance:  
Beginning balance$(1,675)$(1,675)
Release of valuation allowance and other562 — 
Ending balance$(1,113)$(1,675)
 
Tax Receivable Agreement— During 2015, the Company entered into a TRA with the holders of LP Units and certain other pre-initial public offering owners (“Investor Entities”) that provides for the payment by Summit Inc. to exchanging holders of LP Units of 85% of the benefits, if any, that Summit Inc. actually realizes (or, under certain circumstances such as an early termination of the TRA, is deemed to realize) as a result of increases in the tax basis of tangible and intangible assets of Summit Holdings and certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA.
 
When LP Units are exchanged for an equal number of newly-issued shares of Summit Inc.’s Class A common stock, these exchanges result in new deferred tax assets. Using tax rates in effect as of each year end, $0.3 million and $13.7 million of deferred tax assets were created during the years ended December 31, 2022 and January 1, 2022, respectively, when LP Units were exchanged for shares of Class A common stock.

Each year, we update our estimate as to when TRA payments will be made. The timing and cash tax savings of those payments can cause variations in the future value of TRA tax attributes. As noted above, when payments are made under the TRA, a portion of the payment made will be characterized as imputed interest under IRS regulations. We also updated our estimate of the state income tax rate that will be in effect at the date the TRA payments are made. As a result of our updated state income tax rate, and the variance in TRA tax attributes noted above, we have increased our TRA liability by $1.6 million and decreased by $6.8 million as of December 31, 2022 and January 1, 2022, respectively.

Our TRA liability as of December 31, 2022 and January 1, 2022 was $328.4 million and $326.5 million, respectively.
 
Tax Distributions – The holders of Summit Holdings’ LP Units, including Summit Inc., incur U.S. federal, state and local income taxes on their share of any taxable income of Summit Holdings. The limited partnership agreement of
Summit Holdings provides for pro rata cash distributions (“tax distributions”) to the holders of the LP Units in an amount generally calculated to provide each holder of LP Units with sufficient cash to cover its tax liability in respect of the LP Units. In general, these tax distributions are computed based on Summit Holdings’ estimated taxable income allocated to Summit Inc. multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate applicable to a corporate resident in New York, New York.

For the years ended December 31, 2022 and January 1, 2022, Summit Holdings paid tax distributions totaling $0.7 million and zero, respectively, to holders of its LP Units, other than Summit Inc.
 
C Corporation Subsidiaries — The effective income tax rate for the C corporations differ from the statutory federal rate primarily due to (1) tax depletion expense (benefit) in excess of the expense recorded under U.S. GAAP, (2) state income taxes and the effect of graduated tax rates, (3) differences between book and tax basis for divested businesses, (4) various other items such as limitations on meals and entertainment and other costs and (5) unrecognized tax benefits. The effective income tax rate for the Canadian subsidiary is not significantly different from its historical effective tax rate.
 
No material interest or penalties were recognized in income tax expense during the years ended December 31, 2022, January 1, 2022 or January 2, 2021. Tax years from 2015 to 2019 remain open and subject to audit by federal, Canadian, and state tax authorities.
Summit Materials, LLC  
Income Taxes [Line Items]  
Income Taxes Income Taxes
Summit LLC is a limited liability company and passes its tax attributes for federal and state tax purposes to its member and is generally not subject to federal or state income tax. However, certain subsidiaries, or subsidiary groups, file federal, state, and Canadian income tax returns due to their status as C corporations or laws within that jurisdiction. The provision for income taxes is primarily composed of federal, state and local income taxes for the subsidiary entities that have C corporation status.

For the years ended December 31, 2022, January 1, 2022 and January 2, 2021, income taxes consisted of the following:
 
 202220212020
Provision for income taxes:  
Current$16,280 $8,459 $3,827 
Deferred305 12,490 (2,764)
Income tax expense (benefit)$16,585 $20,949 $1,063 
    
The effective tax rate on pre-tax income differs from the U.S. statutory rate of 21% for 2022, 2021 and 2020, respectively, due to the following:
 
 202220212020
Income tax expense (benefit) at federal statutory tax rate$76,172 $40,303 $25,577 
Less: Income tax benefit at federal statutory tax rate for LLC entities(63,498)(27,821)(17,647)
State and local income taxes4,170 3,604 2,073 
Permanent differences787 427 2,479 
Effective tax rate change(491)201 681 
Basis differences from divestitures 3,314 3,766 — 
Unrecognized tax benefits— — (11,525)
Valuation allowance(562)— — 
Other(3,307)469 (575)
Income tax benefit$16,585 $20,949 $1,063 
 
The following table summarizes the components of the net deferred income tax asset (liability) as December 31, 2022 and January 1, 2022:
 
 20222021
Deferred tax (liabilities) assets:  
Accelerated depreciation$(54,590)$(65,149)
Net operating loss6,147 11,602 
Investment in limited partnership(24,630)(21,737)
Net intangible assets(3,236)(2,734)
Mining reclamation reserve1,010 1,258 
Working capital (e.g., accrued compensation, prepaid assets)651 1,493 
Interest expense limitation carryforward482 — 
Net deferred tax liabilities(74,166)(75,267)
Less valuation allowance(1,113)(1,675)
Net deferred tax liability$(75,279)$(76,942)
 
The net deferred income tax liability as of December 31, 2022 and January 1, 2022, are included in other noncurrent liabilities on the consolidated balance sheets. As of December 31, 2022, Summit LLC had federal net operating loss carryforwards of $5.2 million, which expire between 2032 and 2034.

Valuation Allowance—The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible (including the effect of available carryback and carryforward periods) and tax-planning strategies. The deferred income tax asset related to net operating losses resides with two separate tax paying subsidiaries (or subsidiary groups) of Summit LLC. These tax payers have historically generated taxable income and forecast to continue generating taxable income; however, the use of a portion of the net operating may be limited.
20222021
Valuation Allowance:
Beginning balance$(1,675)$(1,675)
Release of valuation allowance and other562 — 
Ending balance$(1,113)$(1,675)

As of December 31, 2022 and January 1, 2022, a $1.1 million and $1.7 million, respectively, valuation allowance has been recorded on net deferred tax assets where realization of our net operating losses are not more likely than not.
The Company does not have any unrecognized tax benefits as of December 31, 2022 or January 1, 2022. The Company records interest and penalties as a component of the income tax provision. No material interest or penalties were recognized in income tax expense during the years ended December 31, 2022 and January 1, 2022.
Tax years from 2016 to 2020 remain open and subject to audit by federal, Canadian and state tax authorities. No income tax expense or benefit was recognized in other comprehensive loss in 2021, 2020 or 2019.
 
Tax Distributions  – The holders of Summit Holdings’ LP Units, including Summit Inc., incur U.S. federal, state and local income taxes on their share of any taxable income of Summit Holdings. The limited partnership agreement of Summit Holdings provides for pro rata cash distributions (“tax distributions”) to the holders of the LP Units in an amount generally calculated to provide each holder of LP Units with sufficient cash to cover its tax liability in respect of the LP Units. In general, these tax distributions are computed based on Summit Holdings’ estimated taxable income allocated to Summit Inc. multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate applicable to a corporate resident in New York, New York. No material distributions were made in the years ended December 31, 2022 and January 1, 2022.