Note 11 – Income Taxes
The income tax provision reconciled to the tax computed at the statutory Federal rate follows:
| | | 2017 | | 2016 | |
| | | | | | | | |
| Tax Expense (Benefit) at Statutory Rate | | $ | 625,603 | | $ | (1,345,685) | |
| Valuation Allowance (Recovery) | | | (570,139) | | | 1,344,094 | |
| Non-Deductible Expenses and Other | | | (62,225) | | | 1,591 | |
| Tax Reform Revaluation, Net of Valuation Allowance | | | (39,037) | | | - | |
| State Taxes, Net of Federal Benefit | | | 47,021 | | | 47,916 | |
| Income tax expense | | $ | 1,223 | | $ | 47,916 | |
| | | | | | | | |
| Current | | $ | 1,223 | | $ | 47,916 | |
| Deferred | | | - | | | - | |
| Total | | $ | 1,223 | | $ | 47,916 | |
Deferred income taxes are comprised of the following:
| | | 2017 | | 2016 | |
| Deferred tax assets (liabilities): | | | | | | | |
| Inventories | | $ | 27,122 | | $ | 104,190 | |
| Stock options and other | | | 58,050 | | | 93,985 | |
| Alternative Minimum Tax credit carryforward | | | 1,703 | | | 24,674 | |
| Contingencies and accruals | | | 81,907 | | | 152,846 | |
| Property and equipment | | | (228,460) | | | (214,383) | |
| Net operating loss carryforward | | | 7,376,283 | | | 12,174,859 | |
| Total deferred tax assets, net | | $ | 7,316,605 | | $ | 12,336,171 | |
| | | | | | | | |
| Valuation allowance | | $ | 7,316,605 | | $ | (12,336,171) | |
As of December 31, 2017, the Company had $2,729,636 of net operating loss carry-forwards, related to the Superior Galleries acquisition which may be available to reduce taxable income in future years, subject to the applicable Internal Revenue Code Section 382 limitations. As of December 31, 2017, the Company had approximately $37,383,432 of net operating loss carry-forwards related to Superior Galleries’ post acquisition operating losses and other operating losses incurred by the Company’s other operations. These carry-forwards will expire, starting in 2026 if not utilized. As of December 31, 2017, the Company determined, based on consideration of all available evidence, including but not limited to historical, current and future anticipated financial results as well as applicable IRS limitation and expiration dates related to the Company’s net operating losses a full valuation allowance should be recorded for its net deferred tax assets.
The Tax Cuts and Jobs Act (the “Tax Act”), which was enacted December 22, 2017, reduced the corporate income tax rate effective January 1, 2018 from 35% to 21%. Among the other significant tax law changes that potentially affect the Company are the limitations on the deduction for interest incurred in 2018 or later of up to 70% of its taxable income for the carryforward year and the limitation of the utilization of post 2017 net operating loss carryforwards. At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Tax Act, however, it has made reasonable estimates of the effects on its existing deferred tax balances. The Company does not anticipate material changes to its income tax provision as a result of the passage of the Tax Act until pre tax law change net operating losses are fully utilized or expire in 2026. The Company has remeasured certain deferred federal tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The deferred tax assets of the Company were reduced by $4,529,327 as a result of this remeasurement. This change was fully offset by the corresponding change in the valuation allowance. The Company has recorded $39,037 on noncurrent receivable related to alternative minimum tax credits which are refundable under the act. The valuation allowance recorded against the alternative minimum tax credits has been reduced and a deferred tax benefit has been recognized in the provision. The Company is still analyzing certain aspects of the Tax Act, and refining its calculations, which could potentially effect the measurement of those balances or potentially give rise to new deferred tax amounts. The Company’s estimates may also be effected in the future as the Company gains a more thorough understanding of the Tax Act, and how the individual states are implementing this new law.