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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes  
Income Taxes

(11)              Income Taxes

 

The Company’s income tax provision (benefit) for the years ended December 31, 2011, 2010, and 2009, consists of the following:

 

 

 

Years Ended December 31

 

 

 

2011

 

2010

 

2009

 

Current:

 

 

 

 

 

 

 

Federal

 

$

3,752,000

 

$

4,259,000

 

$

2,100,000

 

State

 

702,000

 

454,000

 

490,000

 

 

 

4,454,000

 

4,713,000

 

2,590,000

 

Deferred:

 

 

 

 

 

 

 

Federal

 

396,000

 

191,000

 

263,000

 

State

 

56,000

 

115,000

 

(36,000

)

 

 

452,000

 

306,000

 

227,000

 

Total income tax provision

 

$

4,906,000

 

$

5,019,000

 

$

2,817,000

 

 

At December 31, 2011, the Company had net operating loss carryforwards for federal income tax purposes of approximately $1,599,000, which are available to offset future taxable income and expire during the federal tax years ending December 31, 2019, through 2024. The future benefit of the federal net operating loss carryforwards will be limited to approximately $300,000 per year in accordance with Section 382 of the Internal Revenue Code.

 

The approximate tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:

 

 

 

December 31

 

 

 

2011

 

2010

 

Current deferred tax assets:

 

 

 

 

 

Reserves

 

$

377,000

 

$

359,000

 

Inventory capitalization

 

230,000

 

196,000

 

Compensation programs

 

262,000

 

252,000

 

Retirement liability

 

72,000

 

88,000

 

Equity-based compensation

 

228,000

 

314,000

 

Total current deferred tax assets

 

$

1,169,000

 

$

1,209,000

 

 

 

 

 

 

 

Long-term deferred tax assets / (liabilities):

 

 

 

 

 

Excess of book over tax basis of fixed assets

 

$

(1,421,000

)

$

(1,065,000

)

Goodwill

 

(691,000

)

(627,000

)

Intangible assets

 

(146,000

)

(207,000

)

Net operating loss carryforwards

 

544,000

 

644,000

 

Deferred rent

 

64,000

 

57,000

 

Compensation programs

 

358,000

 

317,000

 

Total long-term deferred tax (liabilities)

 

$

(1,292,000

)

$

(881,000

)

 

The amounts recorded as deferred tax assets as of December 31, 2011, and 2010, represent the amount of tax benefits of existing deductible temporary differences or carryforwards that are more likely than not to be realized through the generation of sufficient future taxable income within the carryforward period. The Company has total deferred tax assets of $2,134,000 at December 31, 2011, that it believes are more likely than not to be realized in the carryforward period. Management reviews the recoverability of deferred tax assets during each reporting period.

 

The actual tax provision for the years presented differs from the “expected” tax provision for those years, computed by applying the U.S. federal corporate rate of 34% to income before income tax expense as follows:

 

 

 

Years Ended December 31

 

 

 

2011

 

2010

 

2009

 

Computed “expected” tax rate

 

34.0

%

34.0

%

34.0

%

Increase (decrease) in income taxes resulting from:

 

 

 

 

 

 

 

State taxes, net of federal tax benefit

 

3.4

 

2.0

 

3.4

 

Meals and entertainment

 

0.1

 

0.1

 

0.2

 

R&D credits

 

(0.4

)

(0.3

)

(0.9

)

Domestic production deduction

 

(2.8

)

(1.8

)

(1.7

)

Non-deductible ISO stock option expense

 

0.1

 

0.1

 

0.2

 

Acquisition gains

 

—

 

—

 

(3.3

)

Unrecognized tax benefits

 

(2.4

)

1.0

 

—

 

Income of non-controlling interests

 

(1.0

)

(0.4

)

(0.2

)

Other

 

0.3

 

0.1

 

0.3

 

Effective tax rate

 

31.3

%

34.8

%

32.0

%

 

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  The Company has not been audited by any state for income taxes with the exception of returns filed in Michigan (which have been audited through 2004), and income tax returns filed in Massachusetts for 2005 and 2006, and Florida for 2007, 2008, and 2009 (which are currently being audited). The Company’s federal tax return for 2008 has been audited.  Federal tax returns for the years 2009 through 2010 and state tax returns for the years 2008 through 2010 remain open to examination by the IRS and various state jurisdictions.

 

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) resulting from uncertain tax positions is as follows:

 

 

 

Federal and State Tax

 

 

 

2011

 

2010

 

Gross UTB balance at beginning of fiscal year

 

$

685,000

 

$

545,000

 

Increases for tax positions of prior years

 

40,000

 

140,000

 

Reductions for tax positions of prior years

 

(405,000

)

—

 

Gross UTB balance at December 31

 

$

320,000

 

$

685,000

 

 

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of December 31, 2011, and 2010, are $320,000 and $685,000, respectively, for each year.

 

At December 31, 2011, and 2010, accrued interest and penalties on a gross basis, which are included above in the gross UTB balance, were $145,000 both years.

 

At December 31, 2011, approximately $255,000 of the unrecognized tax benefits relate to tax returns of a specific state jurisdiction that are currently under examination. Accordingly, the Company expects a reduction of this amount during 2012.