Note 11: Income Taxes

The components of the provision for income taxes consist of the following:



	Years Ended December 31,
	2018		2017		2016
	(in thousands)
Current
Federal	$	734	$	2,721	$	10,831
State		638		872		2,560
International		23		30		30
Total Current		1,395		3,623		13,421
Deferred
Federal		2,839		9,354		(363)
State		844		363		(182)
International		80		-		-
Total Deferred		3,763		9,717		(545)
Total Provision for Income Taxes	$	5,158	$	13,340	$	12,876

A majority of the Company's income is from domestic operations.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted into law and the new legislation contains several key tax provisions that affected the Company, including, but not limited to, a reduction of the corporate income tax rate to 21% effective January 1, 2018 and a one-time mandatory transition tax on accumulated foreign earnings. The Company was required to recognize the effect of the tax law changes in the period of enactment, including determining the transition tax, re-measuring the Company’s U.S. deferred tax assets and liabilities and reassessing the net realizability of the Company’s deferred tax assets and liabilities. Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) allowed the Company to record provisional amounts during a measurement period not to extend beyond one year after the enactment date.

During 2018, the Company completed its evaluation of the income tax effects of the Tax Act. The Company recorded adjustments to its provisional estimates resulting in a $0.2 million reduction income tax expense concurrent with the filing of its 2017 federal and state income tax returns. The accounting for the income tax effects of the Tax Act is complete as of December 31, 2018.

The following table reflects the effective income tax rate reconciliation for the years ended December 31, 2018, 2017 and 2016:



	2018		2017		2016
Federal statutory rate	21.0	%	35.0	%	35.0	%
Tax reform	(1.1)		18.9		-
State income taxes, net of the federal tax benefit	5.7		4.1		4.4
Stock based compensation	7.6		(2.0)		1.6
Other	(0.1)		(0.8)		0.1
Effective tax rate	33.1	%	55.2	%	41.1	%

The Company’s effective tax rate for 2018 was 33.1%, compared to 55.2% in 2017, a decrease of 22.1%. The decrease in the effective tax rate is primarily attributable to the Tax Act, which reduced the U.S. federal statutory tax rate from 35% in 2017 to 21% in 2018. Income tax expense in the fourth quarter of 2017 also included a charge to reduce the value of the Company’s deferred tax assets in accordance with the Tax Act, which resulted in an 18.9% increase in the Company’s effective tax rate. Income tax expense in 2018 includes stock based compensation tax shortfall charges, which increased the Company’s effective tax rate by 7.6%.

The Company’s effective tax rate for 2017 was 55.2% in 2017, compared to 41.1% in 2016, an increase of 14.1%. The increase in the effective tax rate was primarily attributable to charges recorded to reduce the value of the Company’s deferred tax assets in accordance with the Tax Act, which resulted in an 18.9% increase in the Company’s effective tax rate.

Components of net deferred income taxes are as follows at December 31:



	2018		2017
	(in thousands)
Deferred income tax assets:
Section 743 carryforward	$	14,730	$	16,508
Leasehold improvement reimbursements		3,719		3,642
Inventory		1,635		1,229
Deferred rent		5,960		5,456
Stock based compensation		1,239		2,016
Other		1,724		1,404
Total deferred income tax assets	$	29,007	$	30,255

Deferred income tax liabilities
Depreciation		19,821		17,403
Other		1,961		1,198
Total deferred income tax liabilities		21,782		18,601
Net deferred income tax assets	$	7,225	$	11,654

The Company completed its analysis of the impacts of U.S. tax reform in the fourth quarter of fiscal year 2018. Accordingly, the Company has recognized the tax consequences of all foreign unremitted earnings and management has no specific plans to indefinitely reinvest the unremitted earnings of its foreign subsidiary as of December 31, 2018. As of December 31, 2018, the total undistributed earnings of the Company's non-U.S. subsidiary is approximately $0.8 million. The Company has provided deferred taxes of $0.1 million on withholding taxes, state taxes, and foreign currency gains and losses due on the repatriation of those earnings.

The Company records interest and penalties through income tax relating to uncertain tax positions. As of December 31, 2018, 2017 and 2016, the Company has not recognized any liabilities for uncertain tax positions nor has the Company accrued interest and penalties related to uncertain tax positions.

The Company's federal income tax returns for fiscal years 2015 through 2017 tax years are still subject to examination in the U.S. Various state and foreign jurisdiction tax years remain open to examination. The Company believes that any potential assessment would be immaterial to its financial statements.