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Income Taxes
 12 Months Ended
Oct. 28, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 4 - Income Taxes:

 

The provision for (benefit on) income taxes includes the following:

 

   October 28, 2022   October 29, 2021 
   (52 Weeks)   (52 Weeks) 
Current:          
Federal  $10,574   $160 
State   2,264    107 
Federal and State Tax Expense Benefit   12,838    267 
Deferred:          
Federal   2,609    (2,102)
State   894    56 
Deferred Federal and State Tax Expense Benefit   3,503    (2,046)
Provision (benefit) for income taxes  $16,341   $(1,779)

 

 

The total tax benefit differs from the expected amount computed by applying the statutory federal income tax rate to income before income taxes as follows:

 

   October 28, 2022   October 29, 2021 
   (52 Weeks)   (52 Weeks) 
Provision for (benefit on) federal income taxes at the applicable statutory rate  $12,895   $(1,529)
Increase in provision resulting from state income taxes, net of federal income tax benefit   2,458    143 
Non-taxable life insurance loss (gain)   427    (556)
Other, net   561    163 
Provision for (benefit on) income taxes  $16,341   $(1,779)

 

Deferred income taxes result from differences in the basis of assets and liabilities for tax and accounting purposes.

 

   2022   2021 
Receivables allowance  $48   $33 
Returns allowance   142    94 
Inventory packaging reserve   145    808 
Inventory overhead capitalization   628    570 
Employee benefits   848    708 
Deferred payroll tax   -    397 
Other   143    221 
State taxes payable (receivable)   275    (34)
Incentive compensation   733    819 
Pension and health care benefits   1,318    3,794 
Depreciation   (13,440)   (13,776)
Net operating loss carry-forward and credits   287    3,029 
Valuation allowance established against state NOL   (99)   (63)
Deferred income taxes, net  $(8,972)  $(3,400)

 

Management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversals of existing taxable temporary differences.

 

Management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversals of existing taxable temporary differences.

 

As of October 28, 2022, the Company did not have any valuation allowance against its federal net deferred tax assets. Management reevaluated the need for a valuation allowance at the end of 2021 and determined that some of its California NOL may not be utilized. Therefore, a valuation allowance of $63 has been retained for such portion of the California NOL.

 

As of October 28, 2022, the Company had net operating loss carryforwards of approximately $10,336 for federal and $8,109 for state purposes. The federal loss will be carried forward indefinitely until it can be utilized against future taxable income.

 

The state loss carryforwards will expire at various dates from 2021 through 2040.

 

In July 2006, the FASB issued guidance to clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This interpretation prescribed 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 discussed derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The cumulative effect, if any, of applying this guidance is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. The provisions of this guidance have been incorporated into ASC 740-10.

 

As of October 28, 2022, we have provided a liability of $289 to unrecognized tax benefits related to various federal and state income tax matters. $76 of this liability will reduce our effective income tax rate if the asset is recognized in future reporting periods. We have not identified any new unrecognized tax benefits.

 

As of October 29, 2021, we have provided a liability of $169 to unrecognized tax benefits related to various federal and state income tax matters. None of this liability will reduce our effective income tax rate if the asset is recognized in future reporting periods. We have not identified any new unrecognized tax benefits.

 

 

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

 

   October 28, 2022   October 29, 2021 
   (52 Weeks)   (52 Weeks) 
         
Balance at beginning of year  $173   $169 
Additions based on tax positions related to the current year   126    - 
Additions for tax positions of prior years   -    4 
           
Balance at end of year  $299   $173 

 

We recognize any future accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of October 28, 2022, we had approximately $25 in accrued interest and penalties which is included as a component of the $299 unrecognized tax benefit noted above.

 

Our federal income tax returns are open to audit under the statute of limitations for the years ended October 31, 2019 through 2021.

 

We are subject to income tax in California and various other state taxing jurisdictions. Our state income tax returns are open to audit under the statute of limitations for the years ended October 31, 2018 through 2021.

 

We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before January 1, 2021. In addition, the CARES Act allows NOLs incurred in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has filed a federal income tax return for tax year 2018 (fiscal year 2019) and has carried back a taxable loss of $9,919 to tax years 2014 (fiscal year 2015) and 2015 (fiscal year 2016). Furthermore, the Company also carried back $21,687 of net operating loss from 2019 (fiscal year 2020) against any remaining taxable income of tax year 2015 (fiscal year 2016) and taxable income of tax years 2016 (fiscal year 2017) and 2017 (fiscal year 2018). The carryback of net operating losses will also release $358 of research & development credits, which will become available for utilization in future years.

 

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Tax Act”). Among other significant changes, the Tax Act reduced the corporate federal income tax rate from 35% to 21%. The carryback of NOLs from tax years 2018 and 2019 under the CARES Act to pre-Tax Act years has generated an income tax benefit of $3,091 due to the difference in income tax rates. The release of research and development credits has generated an income tax benefit of $358. These income tax benefits have been recorded in the income tax provision for current fiscal year 2020.

 

The effective tax rate was 26.6% and 24.4% for fiscal years 2022 and 2021, respectively. The effective tax rate for fiscal year 2021 was impacted by the rate differential on NOL carryback available under the CARES Act discussed in the paragraphs above. In addition, the effective tax rates for fiscal years 2022 and 2021 were impacted by such items as non-deductible meals and entertainment, non-taxable gains and losses on life insurance policies and state income taxes.