Note 7 - Income Taxes

9 Months Ended

Jun. 29, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(

7

) Income Taxes

Effective income tax rate

.

Our effective income tax rate was

22.4%

for the

nine

-month period ended

June 29, 2019

compared with

12.0%

for the

nine

-month period ended

June 30, 2018.

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.

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

first

quarter tax provision for the prior year which resulted in a

$3.7

million reduction of income tax expense. 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, our federal statutory rate was

24.5%

for fiscal

2018

and is

21%

for fiscal

2019

and beyond.

Deferred income taxes.

As of

June 29, 2019,

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

$7.5

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

$2.1

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

2022,

but principally expire between

2022

and

2031.

We have also recorded gross deferred tax assets of

$16,000

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 29, 2019

and

September 29, 2018,

we recorded a valuation allowance of

$265,000

and

$233,000,

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 29, 2019,

we had

no

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

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

2014

remain subject to examination.