Income Taxes
On December 22, 2017, the Tax Cut and Jobs Act (Public Law 115-97, “TCJA” or tax reform) was signed into law. As a result of the reduction in the U.S. corporate income tax rate from 34% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a $2.9 million tax benefit in the Company’s consolidated income statement for the year ended December 31, 2017.
The (benefit) provision for income taxes for years ended December 31, 2017, 2016 and 2015 is as follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
State income tax provision | |
| | |
| | |
|
Current | $ | 38 |
| | $ | (22 | ) | | $ | 107 |
|
Deferred | 448 |
| | 773 |
| | 329 |
|
Total state income tax provision | 486 |
| | 751 |
| | 436 |
|
Federal income tax (benefit) provision | |
| | |
| | |
|
Current | 558 |
| | (160 | ) | | 140 |
|
Deferred | (1,952 | ) | | 2,028 |
| | 2,230 |
|
Total federal income tax (benefit) provision | (1,394 | ) | | 1,868 |
| | 2,370 |
|
Total income tax (benefit) provision | $ | (908 | ) | | $ | 2,619 |
| | $ | 2,806 |
|
The Company’s income tax returns are subject to examination in the U.S. federal and state jurisdictions. To the extent the Company has unutilized net operating loss carryforwards (“NOLs”), the statute of limitations does not begin to run until the NOLs are utilized. Therefore, for federal and state tax purposes, the Company has tax years open dating back to 2006. The Company currently has no unrecognized tax benefits and it is not reasonably possible to estimate the amount by which that could increase in the next twelve months since the timing of examinations, if any, is unknown.
The principal components of deferred taxes at December 31, 2017 and 2016 are as follows (in thousands):
|
| | | | | | | |
| 2017 | | 2016 |
Deferred tax asset | | | |
California NOL carryover | $ | 817 |
| | $ | 955 |
|
Federal alternative minimum tax credit | — |
| | 253 |
|
Accrued vacation | 155 |
| | 230 |
|
Inventory | 287 |
| | — |
|
California alternative minimum tax credit | 101 |
| | 69 |
|
Other | 174 |
| | 47 |
|
Total deferred tax asset | 1,534 |
| | 1,554 |
|
Deferred tax liability | | | |
Inventory | — |
| | (338 | ) |
Property and equipment | (5,691 | ) | | (6,916 | ) |
Intangible assets and goodwill | (626 | ) | | (696 | ) |
Other | (98 | ) | | — |
|
Total deferred tax liability | (6,415 | ) | | (7,950 | ) |
Net deferred tax liability, non-current | $ | (4,881 | ) | | $ | (6,396 | ) |
As of December 31, 2017 the Company has utilized all of its federal NOLs and the amount and expiration dates of California State NOLs are as follows (in thousands):
Under certain circumstances, the ability to use the NOLs and future deductions could be substantially reduced if certain changes in ownership were to occur. In order to reduce this possibility, the Company’s certificate of incorporation includes a charter restriction that prohibits transfers of the Company’s common stock under certain circumstances.
The table below reconciles the expected statutory income tax rate to the actual income tax (benefit) provision (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Expected federal income tax expense | $ | 1,793 |
| | $ | 2,005 |
| | $ | 2,697 |
|
State income tax expense | 317 |
| | 477 |
| | 301 |
|
Revaluation of deferred tax liability due to tax reform | (2,929 | ) | | — |
| | (85 | ) |
Other, net | (89 | ) | | 137 |
| | (107 | ) |
Total | $ | (908 | ) | | $ | 2,619 |
| | $ | 2,806 |
|