Income Taxes

12 Months Ended

Feb. 28, 2022

Income Tax Disclosure [Abstract]

Income Taxes

(13) Income Taxes

The following table represents components of the provision for income taxes for fiscal years ended (in thousands):

	2022		2021			2020
Current:
Federal	$	7,284	$	9,627		$	10,838
State and local		2,516		2,279			1,642
Total current		9,800		11,906			12,480
Deferred:
Federal		3,004		(2,217	)		526
State and local		158		(496	)		(47	)
Total deferred		3,162		(2,713	)		479
Total provision for income taxes	$	12,962	$	9,193		$	12,959

The Company’s effective tax rate on earnings from operations for the year ended February 28, 2022, was 30.9%, compared to 27.6% and 25.3% in 2021 and 2020, respectively. The following summary reconciles the statutory U.S. federal income tax rate to the Company’s effective tax rate for the fiscal years ended:

	2022			2021			2020
Statutory rate		21.0	%		21.0	%		21.0	%
Provision for state income taxes, net of federal    income tax benefit		5.8			4.4			2.5
Change in valuation allowance		—			—			0.8
Federal true-up		0.3			0.8			0.4
Stock compensation and Section 162(m) limitation		3.8			1.5			0.5
Other		—			—			0.1
		30.9	%		27.6	%		25.3	%

Deferred taxes are recorded to give recognition to temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax effects of these temporary differences are recorded as deferred tax assets and deferred tax liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in future years. Deferred tax liabilities generally represent items that have been deducted for tax purposes, but have not yet been recorded in the consolidated statements of operations. To the extent there are deferred tax assets that are more likely than not to be realized, a valuation allowance would be recorded. Management does not expect to be able to utilize the foreign tax credit before it expires in 2026. Therefore, a full valuation allowance was established in fiscal year 2020. IRS code Section 162(m) limits the amount of deductible compensation for tax purposes paid to certain covered employees. The components of deferred income tax assets and liabilities are summarized as follows (in thousands) for fiscal years ended:

Deferred tax assets	2022			2021
Allowance for doubtful receivables	$	280		$	198
Inventories		1,032			1,047
Employee compensation and benefits		659			725
Pension and noncurrent employee compensation    benefits		1,827			4,246
Operating lease liabilities		3,870			4,700
Net operating loss and foreign tax credits		1,033			1,067
Other		274			291
Total deferred tax assets	$	8,975		$	12,274
Less: valuation allowance		(408	)		(408	)
Total deferred tax assets, net	$	8,567		$	11,866
Deferred tax liabilities
Property, plant and equipment	$	6,167		$	4,517
Goodwill and other intangible assets		9,889			10,240
Right-of-use assets		3,797			4,631
Property tax		40			131
Other		79			24
Total deferred tax liabilities	$	19,972		$	19,543
Net deferred income tax liabilities	$	11,405		$	7,677

At fiscal year-end 2022, the Company had federal net operating loss (“NOL”) carry forwards of approximately $2.6 million. This NOL is related to the acquisitions of Flesh and Impressions Direct. The NOL is subject to a Section 382 limitation of $0.2 million per year and expiring in 2040. Based on historical earnings and expected sufficient future taxable income, management believes it will be able to fully utilize the NOL.

Accounting standards require a two-step approach to determine how to recognize tax benefits in the financial statements where recognition and measurement of a tax benefit must be evaluated separately. A tax benefit will be recognized only if it meets a “more-likely-than-not” recognition threshold. For tax positions that meet this threshold, the tax benefit recognized is based on the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority.

At fiscal year-end 2022 and 2021, unrecognized tax benefits related to uncertain tax positions, including accrued interest and penalties of $0.1 million and $0.1 million, respectively, are included in other liabilities on the consolidated balance sheets and would impact the effective rate if recognized. The interest expense associated with the unrecognized tax benefit is not material. A reconciliation of the change in the unrecognized tax benefits for fiscal years ended 2022 and 2021 is as follows (in thousands):

	2022			2021
Balance at March 1, 2021	$	130		$	100
Additions based on tax positions		66			63
Reductions due to lapses of statues of limitations		(30	)		(33	)
Balance at February 28, 2022	$	166		$	130

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company has concluded all U.S. federal income tax matters for years through 2016. All material state and local income tax matters have been concluded for years through 2013.

The Company recognizes interest expense on underpayments of income taxes and accrued penalties related to unrecognized non-current tax benefits as part of the income tax provision. Other than amounts included in the unrecognized tax benefits, the Company did not recognize any interest or penalties for the fiscal years ended 2022, 2021 and 2020.