On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, which included reducing the U.S. federal corporate tax rate from 34 percent to 21 percent in tax years beginning after December 31, 2017. Due to the reduction of the corporate tax rate as part of the Tax Act, deferred tax assets and liabilities have been revalued to reflect the updated corporate tax rate. The Company has recorded a decrease to deferred tax liabilities of $757,562 with a corresponding benefit recorded to deferred income tax expense of $757,562 for the year ended December 31, 2017.
The provision (benefit) for income taxes consists of:
| Year Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Current tax expense: | ||||||||
| Federal | $ | 520,984 | $ | 1,094,647 | ||||
| State | 192,515 | 300,663 | ||||||
| 713,499 | 1,395,310 | |||||||
| Deferred tax expense (benefit): | ||||||||
| Federal | (227,632 | ) | 72,452 | |||||
| State | (33,141 | ) | 10,548 | |||||
| (260,773 | ) | 83,000 | ||||||
| Total | $ | 452,726 | $ | 1,478,310 | ||||
The effective income tax rate differs from the federal statutory rate as follows:
| Year Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Federal statutory rate | 34.00 | % | 34.00 | % | ||||
| State taxes, net of federal benefit | 4.95 | % | 4.95 | % | ||||
| Permanent differences | -1.69 | % | -2.27 | % | ||||
| Tax credits | 0.00 | % | 0.00 | % | ||||
| Prior year adjustments | -2.16 | % | -0.71 | % | ||||
| Changes in tax rates and other | -21.97 | % | 0.02 | % | ||||
| 13.13 | % | 35.99 | % | |||||
Permanent differences for the periods consist primarily of tax deductions for domestic production activities. Changes in tax rate are described above.
Net deferred tax assets and (liabilities) at December 31 consist of:
| 2017 | 2016 | |||||||
| Deferred gain on sale-leaseback | 15,368 | 35,000 | ||||||
| Other | 35,469 | 110,000 | ||||||
| Prepaids | (27,909 | ) | (48,000 | ) | ||||
| Depreciation | (1,487,036 | ) | (1,784,000 | ) | ||||
| Inventory | (123,119 | ) | (244,000 | ) | ||||
| Net noncurrent deferred tax liability | (1,587,227 | ) | (1,931,000 | ) | ||||
| Valuation allowance | - | - | ||||||
| Net deferred tax liability | $ | (1,587,227 | ) | $ | (1,931,000 | ) | ||