Note 10. Income Taxes

Under current accounting standards, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We measure the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and may result in changes to our subjective assumptions and judgments which can materially affect amounts recognized in our balance sheets and statements of income. Our assessment of tax positions as of March 31, 2013 and 2012, determined that there were no material uncertain tax positions. Our federal tax returns for all years after 2009 and our state tax returns after 2008 are subject to future examination by tax authorities for all our tax jurisdictions. We recognize interest and penalties related to income tax matters in other expense and general and administration expense, respectively. During the year ended March 31, 2013, we amended several state income tax returns, resulting in tax refunds of $258,000. These tax refunds are included as an offset to income tax expense in the accompanying statement of operations for the year ended March 31, 2013.

The components of the provision for income taxes are as follows (in thousands):

	Year ended March 31,
	2013			2012			2011
Current tax provision
Federal	$	4,440		$	4,233		$	3,291
State	280			437			691
	4,720			4,670			3,982
Deferred tax provision:
Federal	(180		)	(237		)	(342		)
State	(12		)	(21		)	(72		)
	(192		)	(258		)	(414		)
	$	4,528		$	4,412		$	3,568

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

	March 31,
	2013			2012
Current deferred tax assets:
Accrued employee-related expenses	$	125		$	211
Asset reserves	226			196
Stock option deductible differences	243			99
Inventory	252			204
	846			710

Long-term deferred tax liability:
Property, plant and equipment	(1,320		)	(1,299		)
Goodwill and intangible assets	(1,044		)	(1,220		)
	(2,364		)	(2,519		)

Net deferred tax liability	$	(1,518	)	$	(1,809	)

A reconciliation of our income tax provision and the amounts computed by applying statutory rates to income before income taxes is as follows:

	Year ended March 31,
	2013			2012			2011
Income taxes at statutory rates	$	4,543		$	4,193		$	3,313
State income taxes, net of federal benefit	158			285			272
Tax benefit of stock option exercises	197			61			90
Section 199 manufacturing deduction	(357		)	(347		)	(273		)
Other	(13		)	220			166
	$	4,528		$	4,412		$	3,568