13. INCOME TAXES

The Company determined the provision for income taxes using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In assessing the need for a valuation allowance, the Company looked to the future reversal of existing taxable temporary differences, taxable income in carryback years and the feasibility of tax planning strategies and estimated future taxable income. The need for a valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates.

The Company's cumulative loss position was significant negative evidence in assessing the need for a valuation allowance on its deferred tax assets. As of January 31, 2020, the Company determined that it could not sustain a conclusion that it was more likely than not that it would realize any of its deferred tax assets as a result of historical losses, the difficulty of forecasting future taxable income, and other factors. Given the weight of objectively verifiable historical losses from the Company's operations, it has recorded a full valuation allowance on its deferred tax assets. The Company intends to maintain a full valuation allowance until sufficient positive evidence exists to support its reversal. As of January 31, 2020 and 2019, the Company recorded valuation allowances of $74.9 and $67.7, respectively.

The Company reduced its deferred tax assets with a corresponding reduction to its valuation allowance resulting from the acquired deferred tax liabilities of both Red Bone and Tecton. The Company believes it is necessary to see further positive evidence, such as sustained achievement of profits, before these valuation allowances can be released. If such positive evidence develops, the Company may release all or a portion of the remaining valuation allowances, but at this point in time cannot determine in which period they would reverse. The Company will continue to assess the realizability of its deferred tax assets.

Income tax (benefit) expense consists of the following:


	Year Ended January 31,
	2020		2019		2018
Current:
Federal	$	—	$	—	$	—
State		0.4		0.6		0.1
		0.4		0.6		0.1
Deferred:
Federal		(8.0)		—		—
State		(0.9)		—		—
		(8.9)		—		—
Total income tax (benefit) expense	$	(8.5)	$	0.6	$	0.1

The difference between income tax expense (benefit) and the amount computed by applying the statutory U.S. federal income tax rate (21% for the years ended January 31, 2020 and 2019 and 33.8% for the year ended January 31, 2018) to the pre‑tax (loss) earnings consists of the following:


	Year Ended January 31,
	2020		2019		2018
Statutory federal income tax (benefit) expense	$	(22.0)	$	3.1	$	(8.1)
State income taxes, net of federal benefit		(1.8)		0.2		(0.5)
Change in valuation allowance		7.2		(6.5)		(98.0)
Non-taxable/non-deductible items		0.1		0.3		0.1
Stock compensation		0.1		3.4		(0.8)
Non-deductible Spin-Off costs		—		2.1		—
Meals & entertainment		0.9		0.7		0.5
Officer compensation		2.9		0.7		—
Tax credits		(0.2)		(0.3)		—
Goodwill impairment		3.9		—		—
Acquisition costs		0.4		—		—
Change in tax rate		—		(3.1)		106.9
	$	(8.5)	$	0.6	$	0.1

Income tax benefit was $8.5 for the year ended January 31, 2020, as compared to $0.6 of income tax expense in the prior year period, reflecting the effective tax rate of approximately 8.1% resulting primarily from the benefit recorded in the fourth quarter of Fiscal 2019. The income tax benefit relates to the reduction of the valuation allowance relative to acquired Red Bone and Tecton’s deferred tax liabilities via purchase accounting of approximately $8.9. The benefit is partially offset by current state tax expense of $0.4. Aside from a negligible amount of state and local taxes, there was no income tax expense in the prior year due to the fact that the Company had established a full valuation allowance against its net deferred tax asset.

The tax effects of temporary differences and carryforwards that give rise to deferred income tax assets and liabilities consist of the following:


	January 31, 2020		January 31, 2019
Deferred tax assets:
Accrued liabilities	$	5.9	$	4.5
Intangible assets		77.3		83.3
Net operating loss carryforward		36.4		19.1
Inventory capitalization		0.6		0.8
Interest expense limitation		8.7		1.9
Other		2.2		0.6
		131.1		110.2
Deferred tax liabilities:
Depreciation		(56.2)		(42.5)
		(56.2)		(42.5)
Net deferred tax asset before valuation allowance		74.9		67.7
Valuation allowance		(74.9)		(67.7)
Net deferred tax asset	$	—	$	—

The Company is subject to taxation in the United States and various states. Tax years that remain subject to examinations by major tax jurisdictions are generally open for tax years ending in 2019 and after.

On December 22, 2017, President Trump signed into law the legislation generally known as the Tax Cut and Jobs Act of 2017. The tax law includes significant changes to the U.S. corporate tax systems including a rate reduction from 35% to 21% beginning in January of 2018. In accordance with ASC 740, “Income Taxes,” the impact of a change in tax law is recorded in the period of enactment. For the year ended January 31, 2018, the Company recorded a material, non-cash, change in its net deferred income tax balances of approximately $106.9 million related to the tax rate change.