(

)

Income Taxes

The Company’s income tax provision for the years ended

December 31, 2018,

2017

and

2016

consists of the following (in thousands):

	Years Ended December 31,
	2018			2017			2016
Current
Federal	$	1,772		$	3,117		$	3,120
State		439			551			651
		2,211			3,668			3,771
Deferred
Federal		1,917			(1,091	)		546
State		(36	)		72			30
		1,881			(1,019	)		576

Total income tax provision	$	4,092		$	2,649		$	4,347

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

	December 31,
	2018			2017
Deferred tax assets:
Reserves	$	367		$	398
Inventory capitalization		421			228
Compensation programs		447			394
Retirement liability		2			7
Equity-based compensation		290			158
Deferred rent		11			6
Intangible assets		141			274
Tax credits		257			-
Total deferred tax assets		1,936			1,465
Deferred tax liabilities:
Excess of book over tax basis of fixed assets		(4,668	)		(3,305	)
Goodwill		(1,397	)		(600	)
Total deferred tax liabilities		(6,065	)		(3,905	)
Net long-term deferred tax liabilities	$	(4,129	)	$	(2,440	)

The amounts recorded as deferred tax assets as of

December 31, 2018

and

2017,

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 approximately

$1.9

million at

December 31, 2018,

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 Company has approximately

$325,000

of tax credit carryforwards related to

one

state jurisdiction that expire in

2022.

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

21%

to income before income tax expense as follows:

	Years Ended December 31,
	2018			2017			2016
Computed “expected” tax rate		21.0	%		34.0	%		34.0	%
Increase (decrease) in income taxes resulting from:
State taxes, net of federal tax benefit		2.8			3.5			3.7
Meals and entertainment		0.2			0.3			0.2
Tax credits		(1.9	)		(0.6	)		(0.6	)
Domestic production deduction		-			(2.6	)		(2.5	)
Non-deductible ISO stock option expense		0.1			0.1			0.3
Unrecognized tax benefits		-			-			(0.1	)
Excess tax benefits on equity awards		(1.3	)		(1.4	)		-
Excess compensation		0.8			-			-
Impact on deferred taxes of new legislation		-			(11.1	)		-
Other		0.5			0.1			0.3
Effective tax rate		22.2	%		22.3	%		35.3	%

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,

income tax returns filed in Massachusetts which have been audited through

2007,

income tax returns filed in Florida which have been audited through

2009,

income tax returns filed in New Jersey which have been audited through

2012,

and income tax returns in Colorado which have been audited through

2013.

Income tax returns in Colorado are currently being audited for the years

2014

through

2017.

Federal and state tax returns for the years

2015

through

2018

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 (in thousands):

	December 31,
	2018		2017
Gross UTB balance at beginning of fiscal year	$	150	$	150
Reductions for tax positions of prior years		-		-
Gross UTB balance at end of fiscal year	$	150	$	150

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of

December 31, 2018

and

2017

$150,000

and

$150,000,

respectively.

In addition, the total amount of accrued interest and penalties on uncertain tax positions at

December

31,

2018

and

2017

$153,000

and

$153,000,

respectively.

December 31, 2018,

all of the unrecognized tax benefits relate to tax returns of a specific state jurisdiction that are currently under examination. On

January 17, 2019

the Company came to an agreement with the state and on

February 21, 2019

the Company received a check in the amount of

$156,000

as settlement of the unrecognized tax benefits. Therefore, the Company anticipates a reduction to

zero

of its gross UTB balance in the

first

quarter of

2019.

December 22, 2017,

the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the

“2017

Tax Act”), resulting in significant modifications to existing law. Also on this date, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB)

No.

118

to provide guidance to companies on how to implement the accounting and disclosure changes in situations when a registrant does

not

have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of

H.R.1,

also known as the

2017

Tax Act. Consistent with SAB

118,

the Company provisionally recorded an income tax benefit of

$1.5

million related to the

2017

Tax Act, including remeasurement of its deferred tax assets and liabilities, and executive compensation limitations under Internal Revenue Code Section

162

(m), among others.

As of

December

31,

2018,

the Company has completed its assessment of the total impact of the

2017

Tax Act, which resulted in a reduction in our deferred tax assets and liabilities for the change in the domestic tax rate and a reduction of deferred tax assets related to executive stock-based compensation that would

not

be realized under the provisions of Internal Revenue Code Section

162

(m). In

2018,

we revised our overall reduction in our deferred tax assets by

$50,000

to reflect our analysis over stock- based compensation.