2. Income Taxes

Deferred Income Tax Liabilities and Assets – Deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax laws and rates. Significant components of the Company’s deferred tax liabilities and assets are as follows:



	2013		2012
Deferred tax liabilities:
Property and equipment tax/book differences	$	96,989,000	$	86,915,000
Property tax method		1,384,000		1,441,000
Total deferred tax liabilities		98,373,000		88,356,000
Deferred tax assets:
Insurance reserves		8,957,000		7,927,000
Advance payments on purchases contracts		797,000		699,000
Vacation accrual		2,560,000		2,420,000
State tax credits		1,358,000		316,000
Inventory		2,323,000		1,836,000
Deferred compensation		2,784,000		2,220,000
Other		824,000		1,603,000
Total deferred tax assets		19,603,000		17,021,000
Net deferred tax liabilities	$	78,770,000	$	71,335,000

Current deferred income tax benefits of $7.3 million and $12.8 million at September 28, 2013 and September 29, 2012, respectively, included in other current assets, result from timing differences arising from deferred vendor income, vacation pay, non-income taxes, self-insurance reserves, and from capitalization of certain overhead costs in inventory for tax purposes.

At September 28, 2013 and September 29, 2012 refundable current income taxes totaling $13.8 million and $14.2 million, respectively, are included in the line item “Other current assets” on the Consolidated Balance Sheets.

Income Tax Expense - Income tax expense differs from the amounts computed by applying the statutory federal rates to income before income taxes. The reasons for the differences are as follows:



	2013		2012		2011

Federal tax at statutory rate	$	9,109,000	$	23,572,000	$	21,249,000
State income tax, net of federal tax benefits		(2,204,000)		1,943,000		2,145,000
Federal tax credits		(1,410,000)		(1,209,000)		(1,824,000)
Other		(48,000)		(403,000)		81,000
Total	$	5,447,000	$	23,903,000	$	21,651,000

Current and deferred income tax expense (benefit) is as follows:



	2013		2012		2011

Current:
Federal	$	73,000	$	6,734,000	$	23,664,000
State		(2,061,000)		2,967,000		3,939,000
Total current		(1,988,000)		9,701,000		27,603,000
Deferred:
Federal		7,368,000		12,149,000		(5,040,000)
State		67,000		2,053,000		(912,000)
Total deferred		7,435,000		14,202,000		(5,952,000)
Total expense	$	5,447,000	$	23,903,000	$	21,651,000

Uncertain Tax Positions - Under ASC 740-10 “Accounting for Uncertainty in Income Taxes”, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. A reserve for uncertain tax positions, including interest and penalties, of $0.2 million is included in the Company’s income taxes payable at both September 28, 2013 and September 29, 2012. The reserve for uncertain tax positions has been recorded based on management’s assumption that certain tax positions would be successfully challenged by taxing authorities.

Recently Enacted Tax Regulations – On September 13, 2013, the IRS released final tangible property regulations under Sections 162(a) and 263(a) of the Internal Revenue Code regarding the deduction and capitalization of expenditures related to tangible property as well as dispositions of tangible property. These regulations will be effective for the Company’s fiscal year ending September 26, 2015. Taxpayers may elect to apply them to tax years beginning on or after January 1, 2012. The Company does not anticipate that the regulations will have a material impact on the Company’s consolidated results of operations, cash flows or financial position.