Note 7 - Income Taxes

3 Months Ended

Dec. 28, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(

7

) Income Taxes

Effective income tax rate

.

Our effective income tax rate was

22.7%

for the

three

-month period ended

December 28, 2019

compared with

23.5%

for the

three

-month period ended

December 29, 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.

Deferred income taxes.

As of

December 28, 2019,

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

$7.1

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

$3.5

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

2022,

but principally expire between

2022

and

2032.

We have also recorded gross deferred tax assets of

$8,000

for various state tax credits that expire this year.

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

December 28, 2019

and

September 28, 2019,

we recorded a valuation allowance of

$265,000

and

$257,000,

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

.

We establish contingency reserves for material, known tax exposures based on our assessment of the estimated liability that would be incurred in connection with the settlement of such matters. As of

December 28, 2019,

we had

$122,000

of unrecognized tax benefits that would reduce our income tax rate in future periods, if recognized, which were classified as a reduction in income taxes receivable in other current assets.

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.