NOTE 15 – INCOME TAXES

Our provision for income taxes was as follows for the periods indicated:

	Fifty-Two			Fifty-Two		Fifty-Two
	Weeks Ended			Weeks Ended		Weeks Ended
	January 29,			January 31,		February 1,
	2017			2016		2015
Current expense
Federal	$	14,470		$	7,196	$	6,024
Foreign		86			41		40
State		1,471			771		635
Total current expense		16,027			8,008		6,699

Deferred taxes
Federal		(2,427	)		244		97
State		(216	)		22		24
Valuation Allowance		525			0		0
Total deferred taxes		(2,118	)		266		121
Income tax expense	$	13,909		$	8,274	$	6,820

Total tax expense for fiscal 2017 was $14.1 million, of which $13.9 million was allocated to continuing operations and $204,000 was allocated to other comprehensive income. Total tax expense for fiscal 2016 was $8.6 million, of which $8.3 million was allocated to continuing operations and $277,000 expense was allocated to other comprehensive income. Total tax expense for fiscal 2015 was $6.6 million, of which $6.8 million was allocated to continuing operations and $254,000 benefit was allocated to Other Comprehensive Income.

The effective income tax rate differed from the federal statutory tax rate as follows for the periods indicated:

	January 29,			January 31,			February 1,
	2017			2016			2015

Income taxes at statutory rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in tax rate resulting from:
State taxes, net of federal benefit		2.2			2.1			2.0
Domestic Production Deduction		(0.4	)		(0.6	)		-
Captive Insurance		(1.3	)		-			-
Change in valuation allowance		1.3			-			-
Officer’s life insurance		(1.2	)		(1.1	)		(1.2	)
Other, net		(0.1	)		(1.6	)		(0.6	)
Effective income tax rate		35.5	%		33.8	%		35.2	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities for the period indicated were:

	January 29,			January 31,
	2017			2016
Assets
Deferred compensation	$	4,817		$	4,345
Allowance for bad debts		955			380
State income taxes		32			43
Intangible assets		609			703
Inventories		662			158
Employee benefits		144			-
Capital loss carryover		525			-
Other		460			378
Total deferred tax assets		8,204			6,007
Valuation allowance		(525	)		-
		7,679			6,007
Liabilities
Employee benefits		-			256
Property, plant and equipment		131			321
Total deferred tax liabilities		131			577
Net deferred tax asset without AOCI		7,548			5,430

Deferred tax asset (liability) in AOCI		(284	)		(80	)
Total net deferred tax asset	$	7,264		$	5,350

At January 29, 2017 and January 31, 2016 our net deferred tax asset was $7.3 million and $5.4 million, respectively. The increase in valuation allowance of $525,000 is due to a capital loss that is not expected to be realized. We expect to fully realize the benefit of the deferred tax assets, with the exception of the capital loss, in future periods when the amounts become deductible.

At January 31, 2016, we had an uncertain tax position of $74,000 related to our investment in a captive insurance arrangement. The reserve increased to $76,000 at January 29, 2017. Also, at January 31, 2016, we had a reserve of $147,000 for an uncertain tax position related to the use of state loss carryforwards in our tax returns. The balance of this reserve was $125,000 at January 29, 2017. We expect $139,000 of this uncertain tax position to be settled during the next twelve months.

Current accounting standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also addresses de-recognition, classification, interest and penalties, accounting in interim periods and disclosures.

A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the fiscal years ended January 29, 2017 and January 31, 2016 are as follows:

	January 29,			January 31,
	2017			2016

Balance, beginning of year	$	279		$	482
Increase related to prior year tax positions					-
Decrease related to prior year tax positions		(31	)		(203	)
Increase related to current year tax positions					-
Balance, end of year	$	248		$	279

The net unrecognized tax benefits as of January 29, 2017, which, if recognized, would affect our effective tax rate are $201,000. We expect that $157,000 of gross unrecognized tax benefits will decrease within the next year.

We have elected to classify interest and penalties recognized with respect to unrecognized tax benefits as income tax expense. Interest expense of $23,000 and $12,000 was accrued as of January 29, 2017 and January 31, 2016, respectively.

Tax years ending February 2, 2014, through January 29, 2017 remain subject to examination by federal and state taxing authorities.