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Note 10 - Income Tax | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
| ( 10 ) | Income Tax
The Company’s income tax provision for the years ended December 31, 2019, 2018 and 2017 consists of the following (in thousands):
|  | Years Ended December 31,
|  | 2019 |  | 2018 |  | 2017
Current |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 2,920 |  |  | $ | 1,772 |  |  | $ | 3,117 |
State |  |  | 185 |  |  |  | 439 |  |  |  | 551 |
|  |  | 3,105 |  |  |  | 2,211 |  |  |  | 3,668 |
Deferred |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 485 |  |  |  | 1,917 |  |  |  | (1,091 | )
State |  |  | 306 |  |  |  | (36 | ) |  |  | 72 |
|  |  | 791 |  |  |  | 1,881 |  |  |  | (1,019 | )
Total income tax provision |  | $ | 3,896 |  |  | $ | 4,092 |  |  | $ | 2,649 |
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,
|  | 2019 |  | 2018
Deferred tax assets: |  |  |  |  |  |  |  |
Reserves |  | $ | 362 |  |  | $ | 367 |
Inventory capitalization |  |  | 396 |  |  |  | 421 |
Compensation programs |  |  | 578 |  |  |  | 447 |
Retirement liability |  |  | - |  |  |  | 2 |
Equity-based compensation |  |  | 403 |  |  |  | 290 |
Lease liability |  |  | 795 |  |  |  | 11 |
Intangible assets |  |  | 73 |  |  |  | 141 |
State tax credits, net of federal impact |  |  | 274 |  |  |  | 257 |
Gross deferred tax assets |  |  | 2,881 |  |  |  | 1,936 |
Valuation allowance |  |  | (136 | ) |  |  | - |
Net deferred tax assets |  |  | 2,745 |  |  |  | 1,936 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Excess of book over tax basis of fixed assets |  |  | (4,877 | ) |  |  | (4,668 | )
Goodwill |  |  | (2,008 | ) |  |  | (1,397 | )
Right of use asset |  |  | (781 | ) |  |  | - |
Total deferred tax liabilities |  |  | (7,666 | ) |  |  | (6,065 | )
Net long-term deferred tax liabilities |  | $ | (4,921 | ) |  | $ | (4,129 | )
The amounts recorded as deferred tax assets as of December 31, 2019 and 2018, 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 gross deferred tax assets of approximately $2.9 million at December 31, 2019, 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 provided a valuation allowance of approximately $136 thousand for deferred tax assets (net of federal tax benefit), primarily related to tax credits generated in its 2018 Massachusetts state income tax return that are being carried forward to future periods. The Company is uncertain as to whether it will have sufficient future taxable income in Massachusetts to utilize the credits prior to their expiration date. The valuation allowance against the Company’s deferred tax assets may require adjustments in the future based on changes in the mix of temporary difference, changes in tax laws, and operating performance. The Company has approximately $348 thousand of tax credit carryforwards related to one state jurisdiction that expire between 2020 and 2033. 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,
|  | 2019 |  | 2018 |  | 2017
Computed “expected” tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 34.0 | %
Increase (decrease) in income taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State taxes, net of federal tax benefit |  |  | 1.8 |  |  |  | 2.8 |  |  |  | 3.5 |
Meals and entertainment |  |  | 0.2 |  |  |  | 0.2 |  |  |  | 0.3 |
Tax credits |  |  | (6.2 | ) |  |  | (1.9 | ) |  |  | (0.6 | )
Domestic production deduction |  |  | - |  |  |  | - |  |  |  | (2.6 | )
Non-deductible ISO stock option expense |  |  | - |  |  |  | 0.1 |  |  |  | 0.1 |
Unrecognized tax benefits |  |  | (0.7 | ) |  |  | - |  |  |  | - |
Excess tax benefits on equity awards |  |  | (0.7 | ) |  |  | (1.3 | ) |  |  | (1.4 | )
Excess compensation |  |  | 0.6 |  |  |  | 0.8 |  |  |  | - |
Impact on deferred taxes of new legislation |  |  | - |  |  |  | - |  |  |  | (11.1 | )
Other |  |  | 0.4 |  |  |  | 0.5 |  |  |  | 0.1 |
Change in valuation allowance |  |  | 0.1 |  |  |  | - |  |  |  | - |
Effective tax rate |  |  | 16.5 | % |  |  | 22.2 | % |  |  | 22.3 | %
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 2017. Federal and state tax returns for the years 2016 through 2019 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,
|  | 2019 |  | 2018
Gross UTB balance at beginning of fiscal year |  | $ | 150 |  |  | $ | 150 |
Reductions for tax positions of prior years |  |  | (150 | ) |  |  | - |
Gross UTB balance at end of fiscal year |  | $ | - |  |  | $ | 150 |
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of December 31, 2019 and 2018 is $0 and $150 thousand, respectively. In addition, the total amount of accrued interest and penalties on uncertain tax positions at December 31, 2019 and 2018 is $0 and $153 thousand, respectively. At December 31, 2018, all of the unrecognized tax benefits related 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.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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