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Income Taxes
 12 Months Ended
Feb. 28, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

(12) Income Taxes

The following table represents components of the provision for income taxes for fiscal years ended (in thousands):

 

 

 

2023

 

 

2022

 

 

2021

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

15,784

 

 

$

7,284

 

 

$

9,627

 

State and local

 

 

3,647

 

 

 

2,516

 

 

 

2,279

 

Total current

 

 

19,431

 

 

 

9,800

 

 

 

11,906

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

(1,341

)

 

 

3,004

 

 

 

(2,217

)

State and local

 

 

(460

)

 

 

158

 

 

 

(496

)

Total deferred

 

 

(1,801

)

 

 

3,162

 

 

 

(2,713

)

Total provision for income taxes

 

$

17,630

 

 

$

12,962

 

 

$

9,193

 

 

The Company’s effective tax rate on earnings from operations for the year ended February 28, 2023, was 27.2%, compared to 30.9% and 27.6% in 2022 and 2021, respectively. The following summary reconciles the statutory U.S. federal income tax rate to the Company’s effective tax rate for the fiscal years ended:

 

 

 

2023

 

 

2022

 

 

2021

 

 

Statutory rate

 

 

21.0

 

%

 

21.0

 

%

 

21.0

 

%

Provision for state income taxes, net of federal
   income tax benefit

 

 

3.9

 

 

 

5.8

 

 

 

4.4

 

 

Federal true-up

 

 

1.5

 

 

 

0.3

 

 

 

0.8

 

 

Stock compensation and Section 162(m) limitation

 

 

0.8

 

 

 

3.8

 

 

 

1.5

 

 

 

 

27.2

 

%

 

30.9

 

%

 

27.6

 

%

 

Deferred taxes are recorded to give recognition to temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax effects of these temporary differences are recorded as deferred tax assets and deferred tax liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in future years. Deferred tax liabilities generally represent items that have been deducted for tax purposes, but have not yet been recorded in the consolidated statements of operations. To the extent there are deferred tax assets that are more likely than not to be realized, a valuation allowance would be recorded. Management does not expect to be able to utilize the foreign tax credit before it expires in 2026. Therefore, a full valuation allowance was established in fiscal year 2020. IRS code Section 162(m) limits the amount of deductible compensation for tax purposes paid to certain covered employees. The components of deferred income tax assets and liabilities are summarized as follows (in thousands) for fiscal years ended:

 

Deferred tax assets

 

2023

 

 

2022

 

Allowance for doubtful receivables

 

$

345

 

 

$

280

 

Inventories

 

 

1,170

 

 

 

1,032

 

Employee compensation and benefits

 

 

833

 

 

 

659

 

Pension and noncurrent employee compensation
   benefits

 

 

1,009

 

 

 

1,827

 

Property tax

 

 

161

 

 

 

-

 

Operating lease liabilities

 

 

3,274

 

 

 

3,870

 

Net operating loss and foreign tax credits

 

 

996

 

 

 

1,033

 

Other

 

 

277

 

 

 

274

 

Total deferred tax assets

 

 

8,065

 

 

 

8,975

 

Less: valuation allowance

 

 

(1,242

)

 

 

(408

)

Total deferred tax assets, net

 

$

6,823

 

 

$

8,567

 

Deferred tax liabilities

 

 

 

 

 

 

Property, plant and equipment

 

$

4,902

 

 

$

6,167

 

Goodwill and other intangible assets

 

 

9,683

 

 

 

9,889

 

Right-of-use assets

 

 

3,204

 

 

 

3,797

 

Property tax

 

 

-

 

 

 

40

 

Other

 

 

132

 

 

 

79

 

Total deferred tax liabilities

 

$

17,921

 

 

$

19,972

 

Net deferred income tax liabilities

 

$

11,098

 

 

$

11,405

 

 

 

At fiscal year ended 2023, the Company had federal net operating loss (“NOL”) carry forwards of approximately $2.9 million. This NOL is related to the acquisitions of Flesh and Impressions Direct. The NOL is subject to a Section 382 limitation of $0.2 million per year and expiring in 2040. Based on historical earnings and expected sufficient future taxable income, management believes it will be able to fully utilize the NOL.

Accounting standards require a two-step approach to determine how to recognize tax benefits in the financial statements where recognition and measurement of a tax benefit must be evaluated separately. A tax benefit will be recognized only if it meets a “more-likely-than-not” recognition threshold. For tax positions that meet this threshold, the tax benefit recognized is based on the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority.

At fiscal years ended 2023 and 2022, unrecognized tax benefits related to uncertain tax positions, including accrued interest and penalties of $0.1 million and $0.1 million, respectively, are included in other liabilities on the consolidated balance sheets and would impact the effective rate if recognized. The interest expense associated with the unrecognized tax benefit is not material. A reconciliation of the change in the unrecognized tax benefits for fiscal years ended 2023 and 2022 is as follows (in thousands):

 

 

 

2023

 

 

2022

 

Balance at March 1, 2022

 

$

166

 

 

$

130

 

Additions based on tax positions

 

 

66

 

 

 

66

 

Reductions due to lapses of statues of limitations

 

 

(30

)

 

 

(30

)

Balance at February 28, 2023

 

$

202

 

 

$

166

 

 

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company has concluded all U.S. federal income tax matters for years through 2019. All material state and local income tax matters have been concluded for years through 2016.

The Company recognizes interest expense on underpayments of income taxes and accrued penalties related to unrecognized non-current tax benefits as part of the income tax provision. Other than amounts included in the unrecognized tax benefits, the Company did not recognize any interest or penalties for the fiscal years ended 2023, 2022 and 2021.