| NOTE 10 | Income Taxes |
The Corporation had no federal and state income tax benefit for the years ended May 31, 2013 and 2012.
The difference between the Corporation’s statutory federal income tax rate of 34 percent in fiscal 2013 and 2012, and the effective income tax rate is due primarily to state income taxes and changes in deferred tax assets valuation allowance and are as follows:
| Year ended May 31, | ||||||||
| 2013 | 2012 | |||||||
| (Dollars in thousands) | ||||||||
|
Income taxes at statutory federal rate |
$ | (3,574 | ) | $ | (6,584 | ) | ||
|
State income taxes |
93 | (47 | ) | |||||
|
State net operating loss |
(605 | ) | (1,047 | ) | ||||
|
New Energy Efficient Home Credit |
(91 | ) | (117 | ) | ||||
|
Alternative Fuel Credit |
— | (12 | ) | |||||
|
Other federal credits |
— | (7 | ) | |||||
|
Increase in deferred tax assets valuation allowance |
4,189 | 7,436 | ||||||
|
Other, net |
(12 | ) | 378 | |||||
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Income tax benefit |
$ | — | $ | — | ||||
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Effective tax rate |
0 | % | 0 | % | ||||
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Components of the net deferred tax assets include:
| May 31, | ||||||||
| 2013 | 2012 | |||||||
| (Dollars in thousands) | ||||||||
|
Current deferred tax assets |
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|
Accrued marketing programs |
$ | 55 | $ | 207 | ||||
|
Accrued warranty expense |
1,466 | 1,560 | ||||||
|
Accrued workers’ compensation |
638 | 843 | ||||||
|
Accrued vacation |
319 | 345 | ||||||
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Other |
143 | 180 | ||||||
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Gross current deferred tax assets |
2,621 | 3,135 | ||||||
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Noncurrent deferred tax assets |
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Liability for certain post-retirement benefits |
2,252 | 2,286 | ||||||
|
Accrued warranty expense |
876 | 807 | ||||||
|
Federal net operating loss carryforward |
26,616 | 22,747 | ||||||
|
Federal tax credit carryforward |
1,205 | 1,038 | ||||||
|
State net operating loss carryforward |
7,380 | 6,775 | ||||||
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Depreciation |
735 | 755 | ||||||
|
Other |
(43 | ) | (90 | ) | ||||
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Gross noncurrent deferred tax assets |
39,021 | 34,318 | ||||||
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Total gross deferred tax assets |
41,642 | 37,453 | ||||||
|
Valuation allowance |
(41,642 | ) | (37,453 | ) | ||||
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Net deferred tax assets |
$ | — | $ | — | ||||
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At May 31, 2013, the Corporation had gross federal net operating loss carryforwards of approximately $78 million and gross state net operating loss carryforwards of approximately $95 million. The federal net operating loss and tax credit carryforwards have a life expectancy of twenty years. The state net operating loss carryforwards have a life expectancy, depending on the state where a loss was incurred, between five and twenty years. If the Corporation, after considering future negative and positive evidence regarding the realization of deferred tax assets, determines that a lesser valuation allowance is warranted, it would record a reduction to income tax expense and the valuation allowance in the period of determination.
Income tax returns are filed in the U.S. federal jurisdiction and in several state jurisdictions. For the majority of taxing jurisdictions the Corporation is no longer subject to examination by taxing authorities for years before 2009. The Corporation did not incur any interest or penalties related to income tax matters in fiscal years 2013 and 2012.
The Corporation has no unrecognized tax benefits in its financial statements during fiscal years 2013 and 2012, and does not expect any significant changes related to unrecognized tax benefits in the twelve months following May 31, 2013.