Note 7 - Income Taxes

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(

7

) Income Taxes

Effective income tax rate

.

Our effective income tax rate was

12.0%

for the

nine

-month period ended

June 30, 2018

compared with

33.8%

for the

nine

-month period ended

July 1, 2017.

The effective income tax rates for both periods were based upon the estimated rate applicable for the entire fiscal year adjusted to reflect any significant items related specifically to interim periods. On

December 22, 2017,

the Tax Cuts and Jobs Act (the “Act”) was enacted, which, among other changes, reduced the federal statutory corporate tax rate from

35%

to

21%

effective

January 1, 2018.

Since our fiscal year ends on the Saturday closest to

September 30

rather than the calendar year, we are subject to IRS rules relating to transitional income tax rates. As a result, we will be subject to a federal statutory rate of

24.5%

for fiscal

2018

and

21%

for fiscal

2019

and beyond. Based on the provisions of the Act, we remeasured our deferred tax liabilities and adjusted our estimated annual federal income tax rate to incorporate the lower corporate tax rate into our tax provision during our

first

fiscal quarter which resulted in a

$3.7

million reduction of income tax expense. We are still in process of evaluating the income tax effect of the Act on the executive compensation limitations that will be effective for our fiscal year

2019.

Deferred income taxes.

As of

June 30, 2018,

we recorded a deferred tax liability (net of valuation allowance) of

$5.8

million in other liabilities on our consolidated balance sheet. We have

$7.4

million of state net operating loss carryforwards (“NOLs”) that begin to expire in

2018,

but principally expire between

2018

and

2032.

We have also recorded gross deferred tax assets of

$72,000

for various state tax credits that begin to expire in

2019,

but principally expire between

2019

and

2020.

The realization of our deferred tax assets is entirely dependent upon our ability to generate future taxable income in applicable jurisdictions. GAAP requires that we periodically assess the need to establish a reserve against our deferred tax assets to the extent we

no

longer believe it is more likely than

not

that they will be fully realized. As of

June 30, 2018

and

September 30, 2017,

we recorded a valuation allowance of

$254,000

and

$251,000,

respectively, pertaining to various state NOLs and tax credits that were

not

expected to be utilized. The valuation allowance is subject to periodic review and adjustment based on changes in facts and circumstances and would be reduced should we utilize the state NOLs and tax credits against which an allowance had previously been provided or determine that such utilization was more likely than

not.

Uncertainty in income taxes

.

As of

June 30, 2018,

we had

no

material, known tax exposures that require the establishment of contingency reserves for uncertain tax positions.

We file U.S. federal income tax returns as well as state and local income tax returns in various jurisdictions. Federal and various state tax returns filed subsequent to

2013

remain subject to examination.