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Note 11 - Income Taxes
 12 Months Ended
Jul. 02, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 11. Income Taxes

 

Significant components of the income tax provision are as follows:

 

  

Years ended

 
  

July 2, 2023

  

July 3, 2022

  

June 27, 2021

 
  

(in thousands)

 

Current provision (benefit):

            

Federal

 $976  $(1,676

)

 $17,594 

State

  1,572   1,589   7,339 

Current income tax expense (benefit)

  2,548   (87

)

  24,933 

Deferred provision (benefit):

            

Federal

  (3,145

)

  2,679   5,160 

State

  (1,463

)

  (1,100

)

  370 

Deferred income tax expense (benefit)

  (4,608

)

  1,579   5,530 
             

Income tax expense (benefit)

 $(2,060

)

 $1,492  $30,463 

 

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate is as follows:

 

  

Years ended

 
  

July 2, 2023

  

July 3, 2022

  

June 27, 2021

 
             

Tax at U.S. statutory rates

  21.0

%

  21.0

%

  21.0

%

State income taxes, net of federal tax benefit

  (0.2

)

  4.2   4.2 

Capital loss expiration

  -   15.5   - 

Non-deductible impairment charge

  (16.8

)

  -   - 

Valuation allowance change

  (0.2

)

  (19.8

)

  (0.3

)

Non-deductible compensation

  (2.1

)

  5.3   0.7 

Excess tax benefit/shortfalls from stock-based compensation

  (1.7

)

  (16.1

)

  (4.1

)

Tax credits

  2.7   (3.9

)

  (0.9

)

Enhanced deductions

  2.6   (2.1

)

  (0.2

)

Other, net

  (0.9

)

  0.7   - 

Effective tax rate

  4.4

%

  4.8

%

  20.4

%

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred income tax assets (liabilities) are as follows:

 

  

Years ended

 
  

July 2, 2023

  

July 3, 2022

 
  

(in thousands)

 

Deferred income tax assets:

        

Loss and carryforwards

 $13,598  $7,590 

Accrued expenses and reserves

  3,531   7,550 

Inventory

  4,422   5,897 

Stock-based compensation

  1,549   1,330 

Deferred compensation

  3,602   3,723 

Operating lease liability

  33,186   33,847 

Gross deferred income tax assets

  59,888   59,937 

Less: Valuation allowance

  (3,182

)

  (3,096

)

Deferred tax assets, net

  56,706   56,841 
         

Deferred income tax liabilities:

        

Other intangibles

  (14,916

)

  (21,764

)

Tax in excess of book depreciation

  (41,826

)

  (38,755

)

Operating lease right-of-use asset

  (31,098

)

  (32,064

)

Deferred tax liabilities

  (87,840

)

  (92,583

)

Net deferred income tax liabilities

 $(31,134

)

 $(35,742

)

 

A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. At July 2, 2023, the Company has valuation allowances of approximately $3.2 million, primarily related to certain state and foreign net operating losses. At July 2, 2023, the Company’s federal enhanced deduction and carryforwards were $5.8 million and $3.7 million, respectively, which if not utilized, will expire in 2027 and 2042, respectively. At July 2, 2023, the Company’s state and foreign net operating loss carryforwards were $2.8 million and $1.3 million, respectively, which if not utilized, will begin to expire in Fiscal 2024 and 2034, respectively.

 

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign countries. The Company’s last completed U.S. federal examination was for Fiscal 2018. Fiscal 2020, Fiscal 2021, and Fiscal 2022 remain subject to U.S. federal examination. Due to ongoing state examinations and nonconformity with the U.S. federal statute of limitations for assessment, certain states remain open from Fiscal 2016. The Company's foreign income tax filings from Fiscal 2017 forward are open for examination by its respective foreign tax authorities, mainly Canada and Brazil.

 

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At July 2, 2023, the Company has an unrecognized tax benefit, including accrued interest and penalties, of approximately $1.7 million. The Company believes that $0.2 million of the unrecognized tax positions will be resolved over the next twelve months.