NOTE 9—INCOME TAXES

The income tax expense/(benefit) during each of the three and nine months ended June 28, 2019 and June 29, 2018 follows:



	Three Months Ended				Nine Months Ended
	June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
(in thousands)
Income tax expense/(benefit)	$	221	$	—	$	736	$	(1,005	)

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system. As the Company has a September 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal tax rate of approximately 24.2% for fiscal 2018, and 21% for subsequent fiscal years. The Tax Act eliminated the domestic manufacturing deduction and moved to a territorial system. In addition, previously paid federal alternative minimum tax (“AMT”) are now refundable regardless of whether there is future income tax liability before AMT credits.

The Company concluded that the Tax Act caused the Company’s U.S. deferred tax assets and liabilities to be revalued. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are revalued and any change is adjusted through the provision for income tax expense in the reporting period of the enactment.

The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including discrete items, changes in the mix and amount of pre-tax income, changes in tax laws, business reorganizations, and settlements with taxing authorities, if any.

For the nine months ended June 29, 2018, the impact of the Tax Act resulted in the Company recording a net tax benefit of approximately $1.0 million, resulting from the release of the valuation allowance on the Company’s AMT credits.

The Company's estimated annual effective tax rate for fiscal 2019 is comprised of the federal tax rate of 21% plus the state tax rate of 1.58%, which is adjusted for permanent book tax differences. During the three and nine months ended June 28, 2019, the permanent items included meals and entertainment and stock based compensation. There were no material discrete items recognized in the three and nine months ended June 28, 2019.