Note

. Income Taxes

Loss before income taxes for each of the

two

years in the period ended

December 31, 2019

was subject to taxation under United States jurisdictions only. The provision for income taxes consists of the following (in thousands):

	2019			2018
Current:
Federal	$	(3	)	$	(2	)
State		163			169
Total current income taxes		160			167
Deferred:
Federal		-			-
State		-			-
Total deferred income taxes		-			-
Total provision for income taxes	$	160		$	167

December 22, 2017,

legislation commonly known as the Tax Act was signed into law. The Tax Act changes existing U.S. tax law and includes numerous provisions that will affect Avalon, including our income tax accounting, disclosure and tax compliance. The most impactful changes within the Tax Act are those that will reduce the U.S. corporate tax rates, business-related exclusions and deductions and credits. ASC

740,

“Income Taxes

,” requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. Avalon valued all deferred tax assets and liabilities at the newly enacted Corporate U.S income tax rate. Avalon has a full valuation allowance on its federal deferred tax assets.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at

December 31, 2019

and

2018

are as follows (in thousands):

	2019			2018
Deferred tax assets:
Accounts receivable, allowance for doubtful accounts	$	71		$	65
Reserves not deductible until paid		154			133
Net operating loss carryforwards
Federal		1,646			1,737
State		749			704
Federal tax credit		653			556
Business interest expense carryforward		235			-
Other		115			162
Gross deferred tax assets		3,623			3,357
Less valuation allowance		(2,043	)		(1,881	)
Deferred tax assets net of valuation allowance	$	1,580		$	1,476

Deferred tax liabilities:
Property and equipment	$	(1,517	)	$	(1,438	)
Other		(55	)		(30	)
Gross deferred tax liabilities	$	(1,572	)	$	(1,468	)
Net deferred tax asset	$	8		$	8

The

$1,572,000

of deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as the temporary differences giving rise to the

$1,580,000

of deferred tax assets. Avalon has

not

provided a valuation allowance on the amount of deferred tax assets that it estimates will be utilized. If future taxable income is less than the amount that has been assumed in assessing the recoverability of the deferred tax assets, then an increase in the valuation allowance will be required, with a corresponding increase to income tax expense. Likewise, should Avalon ascertain in the future that it is more likely than

not

that deferred tax assets will be realized in excess of the net deferred tax assets, all or a portion of the

$2,043,000

valuation allowance as of

December 31, 2019,

would be reversed as a benefit to the provision for income taxes in the period such determination was made.

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to loss before income taxes as a result of the following differences (in thousands):

	2019			2018
Loss before income taxes	$	(375	)	$	(3,089	)
Less net loss attributable to non-controlling interest in subsidiary		(80	)		(2,112	)
Loss before income taxes attributable to
Avalon Holdings Corporation common shareholders		(295	)		(977	)
Federal statutory rate		21	%		21	%
Computed Federal provision (benefit) for income taxes		(62	)		(205	)
State income taxes, net of federal income tax benefits		128			135
Change in valuation allowance		162			412
Increase in available federal tax credit		(97	)		(80	)
Other nondeductible expenses		39			34
Decrease (increase) in net operating loss carryforward:
State		-			(148	)
Federal		-			4
Other, net		(10	)		15
Total provision for income taxes	$	160		$	167

Avalon is subject to income taxes in the U.S. federal and various states jurisdictions. With few exceptions, Avalon is

longer subject to U.S. federal, state and local income tax examinations by taxing authorities for the years before

2015

Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively. There were

accruals for the payment of interest and penalties for

2019

and

2018.

Avalon made net income tax payments of approximately

$151,000

and

$109,000

2019

and

2018,

respectively. At

December 31, 2019,

Avalon has taxable loss carryforwards for federal income tax purposes aggregating approximately

$8,938,000

which are available to offset future federal taxable income. Legislation under the Tax Act allows for corporations to carryforward NOLs generated beginning in

2018

indefinitely. NOLs generated in

2018

may

offset

80%

of future taxable income. Of the

$8,938,000

taxable loss carryforwards,

$709,000

is carryforward indefinitely to offset

80%

of future taxable income. These carryforwards expire in

2023

through

2037.

In addition, at

December 31, 2019,

certain subsidiaries of Avalon have net operating loss carryforwards for state purposes of approximately

$9,477,000

which are available to offset future state taxable income. These carryforwards expire at various dates through

2039.

A valuation allowance has been provided because it is more likely than

not

that the deferred tax assets relating to certain of the federal and state loss carryforwards will

not

be realized.