Note H - Income Taxes

12 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE H – INCOME TAXES

Income tax expense (benefit) is as follows:

	Fiscal year ended
	September 30,			September 24,			September 25,
	2023			2022			2021
	(in thousands)
Current
U.S. Federal	$	6,447		$	(374	)	$	13,964
Foreign		6,149			2,854			860
State		4,349			3,210			6,431
Total current expense		16,945			5,690			21,255
Deferred
U.S. Federal	$	12,134		$	10,834		$	(145	)
Foreign		232			(394	)		(353	)
State		(703	)		(1,611	)		(2,338	)
Total deferred expense (benefit)		11,663			8,829			(2,836	)
Total expense	$	28,608		$	14,519		$	18,419

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 2023, 2022 and 2021 to earnings before income taxes for the following reasons:

	Fiscal year ended
	September 30,		September 24,			September 25,
	2023		2022			2021
	(in thousands)
Income taxes at federal statutory rates	$	22,578	$	12,968		$	15,545
Increase (decrease) in taxes resulting from:
State income taxes, net of federal income tax benefit		2,732		1,261			3,233
Share-based compensation		62		162			(124	)
Tax effect in jurisdictions where rates differ from federal statutory rate		1,837		424			156
Other, net		1,399		(296	)		(391	)
Income tax expense	$	28,608	$	14,519		$	18,419

Our effective tax rate in fiscal 2023 was 26.6%. Our effective tax rate in our fiscal 2022 year was 23.5% and our effective tax rate in fiscal 2021 was 24.9%.

Deferred tax assets and liabilities consist of the following:

	Fiscal year ended
	September 30,			September 24,
	2023			2022
	(in thousands)
Deferred tax assets:
Vacation accrual	$	1,215		$	1,321
Capital loss carry forwards		224			17
Unrealized gains/losses		451			504
Accrued insurance liability		3,511			3,614
Operating lease liabilities		23,996			14,521
Deferred income		44			10
Allowances		2,879			2,598
Inventory capitalization		1,702			1,620
Share-based compensation		1,960			1,680
Net operating loss		940			538
Payroll tax accrual		-			1,142
Bonus accrual		2,282			-
Foreign tax credit		250			404
Total deferred tax assets		39,454			27,969
Valuation allowance		(675	)		(521	)
Total deferred tax assets, net		38,779			27,448
Deferred tax liabilities:
Amortization of goodwill and other intangible assets		35,363			32,680
Depreciation of property, plant and equipment		61,185			51,972
Right-of-use assets		22,688			13,058
Accounting method change 481(a)		853			145
Total deferred tax liabilities		120,089			97,855
Total deferred tax liabilities, net	$	81,310		$	70,407

As of September 30, 2023, we have federal and state capital loss carry forwards of approximately $0.8 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 30, 2023, we have a federal net operating loss carry forward of approximately $2.2 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. Additionally, as of September 30, 2023, we have state net operating loss carry forwards of approximately $0.5 million. These state operating losses begin to expire in 2034. We have determined there are no limitations to the total use of these tax assets and, accordingly, have not recorded a valuation allowance for these deferred tax assets.

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. No payroll taxes were deferred as of September 30, 2023.

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.