(

)

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

and

$150

thousand, respectively.

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

December

31,

2019

and

2018

and

$153

thousand, respectively.

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.