13. Income Taxes

Income tax expense consisted of the following:

 

The reconciliation between the Company’s effective tax rate on income from operations and the statutory tax rate is as follows:

 

 

Differences between the effective tax rate and the statutory rate relate primarily to state taxes and permanent items.

Deferred taxes reflect the net tax effects of the temporary differences between the carrying amount of assets and liabilities for financial reporting and the amount used for income tax purposes. Significant components of the Company’s net deferred tax liabilities as of April 1, 2017 and March 26, 2016 consisted of the following (in thousands):

 

 

As of April 1, 2017, the Company has net operating loss carryforwards for federal and state tax purposes of $15.6 million and $15.1 million, respectively. These net operating loss carryforwards expire at various dates beginning in 2018.

Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized. To this end, the Company has considered and evaluated its sources of taxable income, including forecasted future taxable income, and the Company has concluded that a valuation allowance is required for state net operating losses and credits it expects to expire unused. The Company will continue to evaluate the need for a valuation allowance at each period end.

The Company applies ASC 740, which contains a two‑step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments. At April 1, 2017 and March 26, 2016, no amounts were necessary to be recorded for any unrecognized tax liabilities nor any tax benefits.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits as of April 1, 2017 and March 26, 2016.

The Company does not anticipate a significant change in its uncertain tax benefits over the next 12 months. 

The major jurisdictions in which the Company files income tax returns include the U.S. federal jurisdiction, as well as various state jurisdictions within the U.S. The Company’s fiscal years 2012 through 2016 returns are subject to examination by the U.S. federal and various state tax authorities.