| NOTE 9 | Income Taxes |
The Corporation had no federal and state income tax benefit or expense for the years ended May 31, 2017 and 2016.
The difference between the Corporation’s statutory federal income tax rate of 34 percent in fiscal 2017 and 2016, 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, | ||||||||
| 2017 | 2016 | |||||||
| (Dollars in thousands) | ||||||||
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Income taxes at statutory federal rate |
$ | 2 | $ | 637 | ||||
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Income taxes on permanent differences |
215 | 167 | ||||||
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State income taxes |
38 | 199 | ||||||
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State net operating loss |
104 | 252 | ||||||
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New Energy Efficient Home Credit |
(142 | ) | (237 | ) | ||||
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Decrease in deferred tax assets valuation allowance |
(348 | ) | (1,031 | ) | ||||
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Other, net |
131 | 13 | ||||||
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Income tax expense |
$ | — | $ | — | ||||
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Effective tax rate |
0 | % | 0 | % | ||||
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Components of the net noncurrent deferred tax assets include:
| Year Ended | ||||||||
| May 31, | ||||||||
| 2017 | 2016 | |||||||
| (Dollars in thousands) | ||||||||
|
Accrued marketing programs |
$ | 142 | $ | 181 | ||||
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Accrued warranty expense |
2,979 | 2,888 | ||||||
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Accrued workers’ compensation |
1,151 | 1,011 | ||||||
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Accrued vacation |
178 | 346 | ||||||
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Liability for certain post-retirement benefits |
1,762 | 1,850 | ||||||
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Federal net operating loss carryforward |
32,119 | 32,380 | ||||||
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Federal tax credit carryforward |
1,910 | 1,787 | ||||||
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State net operating loss carryforward |
7,566 | 7,717 | ||||||
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Depreciation |
684 | 714 | ||||||
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Other |
221 | 134 | ||||||
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Total gross noncurrent deferred tax assets |
48,712 | 49,008 | ||||||
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Valuation allowance |
(48,660 | ) | (49,008 | ) | ||||
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Net noncurrent deferred tax assets |
$ | 52 | $ | — | ||||
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At May 31, 2017, the Corporation had gross federal net operating loss carryforwards of approximately $94 million and gross state net operating loss carryforwards of approximately $103 million. The federal net operating loss and tax credit carryforwards have a life expectancy of between eleven and eighteen years. The state net operating loss carryforwards have a life expectancy, depending on the state where a loss was incurred, between one and twenty years.
The Corporation has recorded a full valuation allowance against this asset, aside from $52,000 associated with an alternative minimum tax credit recognized primarily in fiscal year 2017. 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. For fiscal 2017, the Corporation reported the utilization of previously fully-reserved federal net operating loss carryforwards of $166,000 and state operating loss carryforwards of $47,000 and released corresponding amounts of the valuation allowance to offset federal and state income tax expense.
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 2013. The Corporation did not incur any interest or penalties related to income tax matters in fiscal years 2017 and 2016.
The Corporation has no unrecognized tax benefits in its financial statements during fiscal years 2017 and 2016, and does not expect any significant changes related to unrecognized tax benefits in the twelve months following May 31, 2017.