6. Income Taxes
Temporary differences, which give rise to deferred tax assets and liabilities, are as follows:
| January 28, | January 30, | |||||
| 2017 | 2016 | |||||
|
Deferred income tax assets: |
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|
Employee benefit expense |
$ 13,983 | $ 13,427 | ||||
|
Inventory |
- | 912 | ||||
|
Deferred rents |
15,874 | 15,636 | ||||
|
Net operating loss carryforwards in certain states |
206 | 163 | ||||
|
Other |
5,287 | 4,844 | ||||
|
Total deferred income tax assets |
$ 35,350 | $ 34,982 | ||||
|
Deferred income tax liabilities: |
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|
Property and equipment |
$ (36,230) | $ (35,038) | ||||
|
Inventory |
(744) | - | ||||
|
Other |
(1,598) | (1,331) | ||||
|
Total deferred income tax liabilities |
(38,572) | (36,369) | ||||
|
Net deferred income tax liabilities |
$ (3,222) | $ (1,387) |
As of January 28, 2017, we had net operating losses (“NOL”) carryforwards for state income tax purposes of $2.9 million that will begin to expire in 2023.
Deferred tax assets (liabilities) are reflected on the Consolidated Balance Sheets as follows:
|
January 28,
|
January 30,
|
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| 2017 | 2016 | |||||
|
Non-current deferred tax assets (included in other assets) |
$ 443 | $ 408 | ||||
|
Non-current deferred tax liabilities (included in other liabilities) |
(3,665) | (1,795) | ||||
|
Net deferred tax liability |
$ (3,222) | $ (1,387) |
The components of income tax (benefit) expense are as follows:
| 2016 | 2015 | 2014 | ||||||||
|
Current: |
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|
Federal |
$ (2,131) | $ 18,298 | $ 15,475 | |||||||
|
State |
(423) | 1,392 | 861 | |||||||
|
Total Current |
(2,554) | 19,690 | 16,336 | |||||||
|
Deferred: |
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|
Federal |
1,870 | (4,820) | 499 | |||||||
|
State |
(35) | (301) | 702 | |||||||
|
Total Deferred |
1,835 | (5,121) | 1,201 | |||||||
|
Income tax (benefit) expense |
$ (719) | $ 14,569 | $ 17,537 |
During 2016, we realized a tax shortfall of $0.9 million, and during 2015 and 2014, we realized excess tax benefits of $3.6 million and $1.8 million, respectively, related to share-based compensation plans that were recorded in additional paid-in-capital on the Consolidated Balance Sheets.
Income tax expense differs from the amount of income tax determined by applying the statutory U.S. corporate tax rate to pre-tax amounts due to the following items:
| 2016 | 2015 | 2014 | ||||||||
|
Federal tax at the statutory rate |
35.0% | 35.0% | 35.0% | |||||||
|
State income taxes, net of federal benefit |
143.7% | 3.7% | 3.8% | |||||||
|
Permanent differences and other |
47.1% | (0.6)% | 0.7% | |||||||
|
Effective tax rate |
225.8% | 38.1% | 39.5% |
The effective tax rate (“ETR”) represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns, adjusted for the impact of permanent differences.
The following is a reconciliation of the change in the amount of unrecognized tax benefits:
| 2016 | 2015 | 2014 | ||||||||
|
Beginning balance |
$ 242 | $ 341 | $ 468 | |||||||
|
Decreases due to: |
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|
Settlements |
- | (99) | - | |||||||
|
Lapse of statutes of limitations |
- | - | (127) | |||||||
|
Ending balance |
$ 242 | $ 242 | $ 341 |
As of January 28, 2017, there were no unrecognized tax benefits (“UTBs”) that, if recognized, would affect the ETR. We recognize interest and penalties related to UTBs in interest expense and penalties. During 2016, 2015, and 2014, the amount of interest and penalties related to UTBs was less than $0.1 million. The total amount of accrued interest and accrued penalties related to UTBs as of January 28, 2017, January 30, 2016 and January 31, 2015 was less than $0.1 million.
We are currently open to audit under the statute of limitations by the Internal Revenue Service for the tax years 2013 through 2015. Our state tax returns are open to audit under statutes of limitations for the tax years 2011 through 2015.