Note

. Income Taxes

Income (loss) before income taxes for each of the

two

years in the period ended

December 31, 2020

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

	2020			2019
Current:
Federal	$	(2	)	$	(3	)
State		100			163
Total current income taxes		98			160
Deferred:
Federal		-			-
State		-			-
Total deferred income taxes		-			-
Total provision for income taxes	$	98		$	160

March 27, 2020,

the CARES Act was enacted in response to the COVID-

pandemic. The CARES Act, among other things, permits net operating loss carryforwards generated in taxable years beginning after

December 31, 2017,

to offset

100%

of taxable income for taxable years beginning before

January 1, 2021,

and

80%

of taxable income in taxable years beginning after

December 31, 2020.

In addition, the CARES Act allows net operating losses 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 adoption of these provisions did

not

have a material impact on the Company's financial position or results of operations.

December 27, 2020,

the Consolidated Appropriations Act,

2021

(the “Appropriations Act”) was enacted in response to the COVID-

pandemic. The Appropriations Act, among other things, temporarily extends through

December 31, 2025,

certain expiring tax provisions, including look-through treatment of payments of dividends, interest, rents, and royalties received or accrued from related controlled foreign corporations. Additionally, the Appropriations Act enacts new provisions and extends certain provisions originated within the CARES Act, including an extension of time for repayment of the deferred portion of employees' payroll tax through

December 31, 2021,

and a temporary allowance for full deduction of certain business meals. Avalon has elected

not

to defer the employees' portion of payroll tax. Management is currently evaluating the other provisions of the Appropriations Act, but at present time does

not

expect that the other provisions of the Appropriations Act would result in a material tax or cash benefit.

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

December 31, 2020

and

2019

are as follows (in thousands):

	2020			2019
Deferred tax assets:
Accounts receivable, allowance for doubtful accounts	$	68		$	71
Reserves not deductible until paid		55			154
Net operating loss carryforwards
Federal		2,170			1,646
State		816			749
Federal tax credit		733			653
Business interest expense carryforward		-			235
Operating lease liabilities		416			-
Other		69			115
Gross deferred tax assets		4,327			3,623
Less valuation allowance		(2,269	)		(2,043	)
Deferred tax assets net of valuation allowance	$	2,058		$	1,580

Deferred tax liabilities:
Property and equipment	$	(1,552	)	$	(1,517	)
Operating lease right of use assets		(416	)		-
Other		(82	)		(55	)
Gross deferred tax liabilities	$	(2,050	)	$	(1,572	)
Net deferred tax asset	$	8		$	8

The

$2,050,000

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

$2,058,000

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

$2,269,000

valuation allowance as of

December 31, 2020,

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 the income (loss) before income taxes as a result of the following differences (in thousands):

	2020			2019
Income (loss) before income taxes	$	52		$	(375	)
Less net loss attributable to non-controlling interest in subsidiary		(60	)		(80	)
Income (loss) before income taxes attributable to
Avalon Holdings Corporation common shareholders		112			(295	)
Federal statutory rate		21	%		21	%
Computed Federal provision (benefit) for income taxes		24			(62	)
State income taxes, net of federal income tax benefits		79			128
Change in valuation allowance		226			162
Increase in available federal tax credit		(80	)		(97	)
Other nondeductible expenses		16			39
Other nontaxable income		(168	)		-
Other, net		1			(10	)
Total provision for income taxes	$	98		$	160

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

2016

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

2020

and

2019.

Avalon made net income tax payments of approximately

$148,000

and

$151,000

2020

and

2019,

respectively. At

December 31, 2020,

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

$10,305,000

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

2018

indefinitely. Net operating losses generated in

2018

may

offset

80%

of future taxable income. Of the

$10,305,000

taxable loss carryforwards,

$2,076,000

is carryforward indefinitely to offset

80%

of future taxable income. Net operating losses generated prior to

2018

expire in

2023

through

2037.

In addition, at

December 31, 2020,

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

$10,281,000

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.