7.	Income taxes

The components of income tax (benefit) expense are as follows (in thousands):

		Year Ended December 31,
		2017				2016
Current
Federal		$	-			$	-
State and local			52				54
Total current			52				54
Deferred
Federal		$	(148	)		$	-
State and local			-				-
Total deferred			(148	)			-
Total income tax (benefit) expense		$	(96	)		$	54

 

For the years ended December 31, 2017 and 2016, current income tax expense related to operations substantially represents minimum state income taxes. For the year ended December 31, 2017, deferred income tax benefit represents a reduction of the valuation allowance due to a change in tax law permitting alternative minimum tax credits to be refundable.

The difference between the benefit for income taxes computed at the statutory rate and the reported amount of tax expense (benefit) from operations is as follows:

		Year ended December 31,
		2017				2016
Federal income tax rate			(34.0	)%			(34.0	)%
State income tax (net of federal effect)			6.8				1.7
Change in valuation allowance			(251.5	)			34.3
Deferred tax asset write-down			73.2				-
Non-deductible expenses			0.6				0.6
Impact of tax law change			198				-
Effective tax rate			(6.9	)%			2.6	%

The deferred tax assets and liabilities are summarized as follows (in thousands):

		December 31,
		2017				2016
Deferred tax assets:
Net operating loss carryforwards		$	6,356			$	8,809
Equity-based compensation			107				1,275
Tax credit carryforwards			148				148
Accrued compensation			180				305
Accrued liabilities & other			157				105
Gross deferred tax assets			6,948				10,642
Less: valuation allowance			(6,365	)			(9,850	)
Deferred tax assets after valuation allowance			583				792
Deferred tax liabilities:
Intangible assets
Other			(435	)			(784	)
Deferred tax liabilities			-				(8	)
Net Deferred tax assets			(435	)			(792	)
		$	148			$	-

 

The Tax Cuts and Jobs Act (the "Act") was enacted in December 2017. Among other things, the Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent, eliminates the alternative minimum tax (“AMT”) for corporations, and provides that AMT credit carryforwards are refundable over a period of time beginning with the Company’s 2018 tax year through 2021. The reduction of the corporate tax rate resulted in a write-down of the Company’s net deferred tax assets of approximately $2.7 million, and a corresponding write-down of the valuation allowance. The Company recognized a deferred income tax benefit of $148,000 for the year ended December 31, 2017 due to a reduction of the valuation allowance related to the AMT credit carryforward. As a result of the Act, the AMT credit carryforward is determined to be more likely than not to be realized.