NOTE 8 — INCOME TAXES
The income tax provision for the years ended December 31, 2017 and 2016 was $0 and $2,000, respectively. The 2016 tax provision consists of state income taxes paid or currently payable. The deferred tax asset as of December 31, 2017 and 2016 is comprised of the following (dollars in thousands):
| | | 2017 | | 2016 | |
| Deferred tax assets | | | | | | | |
| Net operating losses | | $ | 9,525 | | $ | 11,473 | |
| Accrued warranty | | | 12 | | | 50 | |
| Other accrued expenses | | | 948 | | | 484 | |
| Total deferred tax assets | | | 10,485 | | | 12,007 | |
| Valuation allowance | | | (10,485) | | | (12,007) | |
| Net deferred tax asset | | $ | — | | $ | — | |
The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. As of December 31, 2017, the state and federal net operating loss carryforwards are approximately $34,258,000 and $34,230,000, respectively. Due to the uncertainty surrounding the realization of these deferred tax assets, the Company has recorded a 100% valuation allowance. Net operating loss carryforwards expire between the years 2029 and 2036. Tax years ended December 31, 2017, 2016, 2015, 2014 and 2013 are open and subject to audit. The Company’s net operating losses are subject to examination until those net operating losses are utilized and those tax years are closed.
The reconciliation of the U.S. statutory rate with the Company’s effective test rate is summarized as follows:
| | | 2017 | | 2016 | |
| | | % of pre-tax
Earnings | | % of pre-tax
Earnings | |
| Federal tax | | | (34.0) | % | | (34.0) | % |
| State tax, net | | | (7.9) | | | (4.9) | |
| Change in federal tax rate | | | 56.1 | | | — | |
| Change in valuation allowance | | | (19.2) | | | 33.3 | |
| Miscellaneous | | | 5.0 | | | 5.6 | |
| | | | 0.0 | % | | 0.0 | % |
Management is not aware of any uncertain tax positions and does not expect the total amount of recognized tax benefits to change significantly in the next twelve months.
On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TJCA makes broad changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S federal corporate tax rate from 35% to 21%; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; (4) creating the base erosion and anti-abuse tax, a new minimum tax; (5) limitation on the deductibility of certain executive compensation; (6) enhancing the option to claim accelerated depreciation deductions on qualified property, and (7) changing the rules related to uses and limitations of NOLs in tax years beginning after December 31, 2017.
The TCJA reduces the corporate tax rate to 21%, effective January 1, 2018. The accounting for this portion of the TCJA has caused a reduction to the net deferred tax assets before valuation allowance of $4.4 million for the year ended December 31, 2017. However, as discussed above, the Company maintains a full valuation allowance against its deferred tax assets. As a result, the $4.4 million reduction to the Company’s deferred tax assets is offset by a corresponding $4.4 million reduction in the Company’s valuation allowance, resulting in no net impact to the Company’s tax provision.