Note H - Income Taxes

12 Months Ended

Sep. 24, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE H – INCOME TAXES

Income tax expense (benefit) is as follows:

	Fiscal year ended
	September 24,			September 25,			September 26,
	2022			2021			2020
	(in thousands)
Current
U.S. Federal		(374	)	$	13,964		$	1,992
Foreign		2,854			860			193
State		3,210			6,431			(1,517	)
Total current expense		5,690			21,255			668
Deferred
U.S. Federal		10,834		$	(145	)	$	3,139
Foreign		(394	)		(353	)		(536	)
State		(1,611	)		(2,338	)		(110	)
Total deferred (benefit) expense		8,829			(2,836	)		2,493
Total expense	$	14,519		$	18,419		$	3,161

The provisions for income taxes differ from the amounts computed by applying the statutory federal income tax rate of 21% for the fiscal years ended 2022, 2021 and 2020 to earnings before income taxes for the following reasons:

	Fiscal year ended
	September 24,		September 25,			September 26,
	2022		2021			2020
	(in thousands)
Income taxes at federal statutory rates	$	12,968	$	15,545		$	4,508
Increase (decrease) in taxes resulting from:
State income taxes, net of federal income tax benefit		1,261		3,233			(1,285	)
Share-based compensation		162		(124	)		(183	)
Other, net		128		(235	)		121
Income tax expense	$	14,519	$	18,419		$	3,161

Our effective tax rate in fiscal 2022 was 23.5%. Our effective tax rate in our fiscal 2021 year was 24.9%. Net earnings for the 2020 year benefited from a reduction in income tax expense related to state deferred taxes and provision to return adjustments of approximately $2.2 million. Excluding these benefits, our effective tax rate in our fiscal 2020 year was 25.0%.

Deferred tax assets and liabilities consist of the following:

	Fiscal year ended
	September 24,			September 25,
	2022			2021
	(in thousands)
Deferred tax assets:
Vacation accrual	$	1,321		$	1,359
Capital loss carry forwards		17			14
Unrealized gains/losses		504			598
Insurance accrual		3,614			3,918
Operating lease liabilities		14,521			16,235
Deferred income		10			30
Allowances		2,598			2,155
Inventory capitalization		1,620			1,108
Share-based compensation		1,680			1,754
Net operating loss		538			617
Payroll tax accrual		1,142			2,307
Foreign tax credit		404			404
Total deferred tax assets		27,969			30,499
Valuation allowance		(521	)		(612	)
Total deferred tax assets, net		27,448			29,887
Deferred tax liabilities:
Amortization of goodwill and other intangible assets		32,680			31,540
Depreciation of property, plant and equipement		51,972			44,924
Right-of-use assets		13,058			14,773
Accounting method change 481(a)		145			228
Total deferred tax liabilities		97,855			91,465
Total deferred tax liabilities, net	$	70,407		$	61,578

As of September 24, 2022, we have federal and state capital loss carry forwards of approximately $2.0 million primarily from the sale of marketable securities in fiscal year 2017 and unrealized losses incurred in fiscal years 2019 and 2020. These carry forwards began to expire in fiscal 2021. Except for current year usage, we have no foreseeable capital gains that would allow us to use this asset. Accordingly, we have recorded a valuation allowance for the full amount of this deferred tax asset.

As of September 24, 2022, we have a federal net operating loss carry forward of approximately $2.5 million from the PHILLY SWIRL acquisition. These carry forwards are subject to an annual limitation under Code Section 382 of approximately $0.4 million and will expire in 2033. We have determined there are no limitations to the total use of this tax asset and accordingly, have not recorded a valuation allowance for this deferred tax asset.

We have undistributed earnings of our Mexican and Canadian subsidiaries. We are no longer permanently reinvested in earnings of our foreign subsidiaries for any year. No additional U.S. federal income taxes are anticipated if our undistributed earnings in our Mexican and Canadian subsidiaries were repatriated to the U.S. However, if such funds were repatriated, a portion of the funds remitted may be subject to applicable state income taxes and non-U.S. income and withholding taxes. The amount of unrecognized deferred income tax liabilities related to potential state income tax and foreign withholding taxes is immaterial.

The Coronavirus, Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020, which introduced and revised numerous provisions including a technical correction to qualified improvement property for assets placed in service after 2017 through 2022 to allow for immediate depreciation to be claimed on these assets and the deferral of employer’s share of certain payroll taxes. As a result of the CARES Act, we deferred $4.3 million of payroll taxes as of September 24, 2022.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA made several changes to the U.S. tax code effective after December 31, 2022, including, but not limited to, a 15% minimum tax on large corporations with average annual financial statement income of more than $1 billion for a three tax-year period and a 1% excise tax on public company stock buybacks, which will be accounted for in treasury stock. We do not expect these changes to have a material impact on our provision for income taxes or financial statements.