NOTE 4 – INCOME TAXES

Transcat's net income before income taxes on the Consolidated Statements of Income is as follows:

	FY 2016		FY 2015
United States	$	5,760	$	6,115
Foreign		247		308
Total	$	6,007	$	6,423

The provision for income taxes for fiscal years 2016 and 2015 is as follows:

	FY 2016			FY 2015
Current Tax Provision:
Federal	$	1,367		$	1,200
State		202			311
Foreign		174			107
		1,743			1,618
Deferred Tax (Benefit) Provision:
Federal	$	266		$	776
State		85			64
Foreign		(211	)		(61	)
		140			779
Provision for Income Taxes	$	1,883		$	2,397

A reconciliation of the income tax provision computed by applying the statutory U.S. federal income tax rate and the income tax provision reflected in the Consolidated Statements of Income is as follows:

	FY 2016			FY 2015
Federal Income Tax at Statutory Rate	$	2,042		$	2,184
State Income Taxes, net of federal benefit		226			220
Federal, State & Foreign Research & Development Credits		(479	)		0
Other, net		94			(7	)
Total	$	1,883		$	2,397

The components of net deferred tax assets (liabilities) are as follows:

	March 26, 2016			March 28, 2015
Deferred Tax Assets:
Accrued Liabilities	$	399		$	384
Performance-Based Grants		335			395
Inventory Reserves		163			143
Non-Qualified Deferred Compensation Plan		273			362
Post-retirement Health Care Plans		387			385
Stock-Based Compensation		808			810
Capitalized Inventory Costs		117			112
Net Operating Loss Carryforward		133			-
Other		313			151
Total Deferred Tax Assets	$	2,928		$	2,742
Deferred Tax Liabilities:
Goodwill and Intangible Assets	$	(1,865	)	$	(1,754	)
Depreciation		(2,127	)		(1,544	)
Other		(7	)		(80	)
Total Deferred Tax Liabilities		(3,999	)		(3,378	)

Net Deferred Tax (Liabilities) Assets	$	(1,071	)	$	(636	)

Deferred U.S. income taxes have not been recorded for basis differences related to the investments in the Company's foreign subsidiary. The Company considers undistributed earnings, if any, as permanently reinvested in the subsidiary. The determination of a deferred tax liability on unremitted earnings would not be practicable because such liability, if any, would depend on circumstances existing if and when remittance occurs.

The Company files income tax returns in the U.S. federal jurisdiction, various states and Canada. The Company is no longer subject to examination by U.S. federal income tax authorities for fiscal years 2013 and prior, by state tax authorities for fiscal years 2010 and prior, and by Canadian tax authorities for fiscal years 2008 and prior. There are no tax years currently under examination by U.S. federal, state or Canadian tax authorities.

During fiscal years 2016 and 2015, there were no uncertain tax positions, and the Company expects no material uncertain tax positions within the next twelve months. The Company recognizes interest and penalties, if any, related to uncertain tax positions in the provision for income taxes. No interest or penalties related to uncertain tax positions were recognized in fiscal years 2016 and 2015 or were accrued at March 26, 2016 and March 28, 2015.

At March 26, 2016, the deferred tax asset related to U.S. federal net operating loss carryforwards of approximately $0.1 million and U.S. state net operating loss carryforwards of less than $0.1 million are available to reduce future taxable income. The utilization of these losses is subject to an annual limitation due to ownership change rules set forth under Internal Revenue Code Section 382.

The Company's effective tax rate for fiscal years 2016 and 2015 was 31.3% and 37.3%, respectively. Its tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. The most significant impact on the difference between the Company's statutory U.S. federal income tax rate of 34.0% and effective tax rate was the cumulative impact of research and development credits of $0.5 million, of which $0.3 million relates to prior periods.

The Company expects to receive certain federal and state tax credits in future years, but not to the extent that they were received in fiscal year 2016. As such, we expect our effective tax rate to be higher in future years than it was in fiscal year 2016.