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Note 11 - Income Taxes
 12 Months Ended
Jun. 30, 2024
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

 
  

June 30, 2024

  

July 2, 2023

  

July 3, 2022

 
  

(in thousands)

 

Current provision (benefit):

            

Federal

 $11,774  $976  $(1,676)

State

  161   1,572   1,589 

Current income tax expense (benefit)

  11,935   2,548   (87)

Deferred provision (benefit):

            

Federal

  (14,246)  (3,145)  2,679 

State

  2,514   (1,463)  (1,100)

Deferred income tax expense (benefit)

  (11,732)  (4,608)  1,579 
             

Income tax expense (benefit)

 $203  $(2,060) $1,492 

 

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

 

  

Years ended

 
  

June 30, 2024

  

July 2, 2023

  

July 3, 2022

 
    

Tax at U.S. statutory rates

  21.0%  21.0%  21.0%

State income taxes, net of federal tax benefit

  (8.1)  (0.2)  4.2 

Capital loss expiration

  -   -   15.5 

Non-deductible impairment charge

  -   (16.8)  - 

Valuation allowance change

  (28.5)  (0.2)  (19.8)

Non-deductible compensation

  (0.6)  (2.1)  5.3 

Excess tax benefit/shortfalls from stock-based compensation

  (11.9)  (1.7)  (16.1)

Tax credits

  16.9   2.7   (3.9)

Enhanced deductions

  11.8   2.6   (2.1)

Other, net

  (4.0)  (0.9)  0.7 

Effective tax rate

  (3.4)%  4.4%  4.8%

 

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:

 

  

June 30, 2024

  

July 2, 2023

 
  

(in thousands)

 

Deferred income tax assets:

        

Loss and carryforwards

 $8,096  $13,598 

Accrued expenses and reserves

  3,146   3,531 

Inventory

  5,417   4,422 

Stock-based compensation

  1,767   1,549 

Deferred compensation

  6,815   3,602 

Operating lease liability

  30,763   33,186 

Gross deferred income tax assets

  56,004   59,888 

Less: Valuation allowance

  (4,868)  (3,182)

Deferred tax assets, net

  51,136   56,706 
         

Deferred income tax liabilities:

        

Other intangibles

  (10,693)  (14,916)

Tax in excess of book depreciation

  (31,206)  (41,826)

Operating lease right-of-use asset

  (28,639)  (31,098)

Deferred tax liabilities

  (70,538)  (87,840)

Net deferred income tax liabilities

 $(19,402) $(31,134)

 

At June 30, 2024, the Company’s federal enhanced deduction and carryforwards were $3.6 million, tax effected, which if not utilized will begin to expire in 2027. At June 30, 2024, the Company’s state and foreign net operating loss carryforwards were $2.9 million and $1.3 million, tax effected, respectively, which if not utilized will begin to expire in Fiscal 2025 and Fiscal 2034, respectively.

 

The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized.  In completing this evaluation, the Company considers available positive and negative evidence. Such evidence includes historical operating results, the existence of cumulative earnings and losses in the most recent fiscal years, taxable income in prior carryback year(s) if permitted under the tax law, the time period over which our temporary differences will reverse, the implementation of feasible and prudent tax planning strategies, and expectations for future pre-tax operating income. Estimating future taxable income is inherently uncertain and requires judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of this evidence, it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized in future periods.  During Fiscal 2024, the Company recorded valuation allowances of $1.7 million relating to certain state and foreign jurisdictions and concluded no further valuation allowances were necessary despite a three-year cumulative loss. This is based on a detailed analysis of future taxable income, with a particular focus on the scheduling of temporary differences that are expected to reverse in periods where the Company anticipates taxable income. Specifically, the timing and amount of future reversals of deferred tax liabilities are expected to fully offset the Company’s deferred tax assets, allowing it to realize their value without relying on additional sources of taxable income. At June 30, 2024 and July 2, 2023, the Company had valuation allowances of approximately $4.9 million and $3.2 million, respectively, primarily related to certain state and foreign net operating losses.

 

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 2021, Fiscal 2022, and Fiscal 2023 remain subject to U.S. federal examination. Due to nonconformity with the U.S. federal statute of limitations for assessment, certain states remain open from Fiscal 2020. 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 June 30, 2024, the Company has an unrecognized tax benefit, including accrued interest and penalties, of approximately $3.2 million all of which if fully recognized would impact our effective tax rate. The Company believes that $0.4 million of the unrecognized tax positions will be resolved over the next twelve months.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

 

  

Years ended

 
  

June 30, 2024

  

July 2, 2023

  

July 3, 2022

 
  

(in thousands)

 

Beginning balance

 $1,724  $1,374  $1,134 

Increases on tax positions for prior years

  1,100   30   21 

Increases on tax positions for current year

  387   320   267 

Settlements

  -   -   (19)

Statute of limitation expirations

  (431)  -   (29)

Ending balance

 $2,780  $1,724  $1,374