NOTE 8 – INCOME TAXES

The components of the provision for income taxes are as follows:



	Year Ended Fiscal March
	2019		2018			2017
	(Dollars in thousands)
Current -
Federal	$	5,682	$	20,854		$	22,040
State		2,409		3,180			2,422
		8,091		24,034			24,462
Deferred -
Federal		11,563		15,153			10,120
State		954		332			1,136
		12,517		15,485	(a)		11,256
Total	$	20,608	$	39,519		$	35,718

_________________

(a)

For fiscal 2018, includes $4.7 million related to the Tax Cuts and Jobs Act of 2017 (“Tax Act”).

On December 22, 2017, the Tax Act was signed into law. The Tax Act made broad and complex changes to U.S. federal corporate income taxation. Additionally, in December 2017, the Securities and Exchange Commission (“SEC”) issued guidance under Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” allowing taxpayers to record provisional amounts for reasonable estimates when they did not have the necessary information available, prepared or analyzed in reasonable detail to complete their accounting for certain income tax effects of the Tax Act. In accordance with this guidance, we recorded a provisional net income tax expense of approximately $4.7 million for the year ended March 31, 2018. This amount is primarily from the remeasurement of our net deferred tax assets to reflect the new, lower U.S. federal corporate income tax rate.

For the third quarter of fiscal 2019, we completed our accounting for the impact of the Tax Act. We did not record any material adjustments to provisional amounts previously recorded.

Deferred tax (liabilities) assets consist of the following:



	March 30,		March 31,
	2019		2018
	(Dollars in thousands)
Goodwill	$	(39,020)	$	(32,290)
Other		(429)		(645)
Total deferred tax liabilities		(39,449)		(32,935)
Property and equipment		19,723		25,056
Insurance reserves		9,071		6,769
Warranty and other reserves		3,360		2,978
Loss carryforwards		2,507		1,963
Other		6,954		7,644
Total deferred tax assets		41,615		44,410
Net deferred tax assets	$	2,166	$	11,475

We have $6.3 million of state net operating loss carryforwards available as of March 30, 2019. The state net operating loss carryforwards expire in varying amounts through 2039. Based on all available evidence, we have determined that it is more likely than not that sufficient taxable income of the appropriate character within the carryforward period will exist for the realization of the tax benefits on existing state net operating loss carryforwards.

We believe it is more likely than not that all other future tax benefits will be realized as a result of current and future income.

A reconciliation between the U.S. federal statutory tax rate and the effective tax rate reflected in the accompanying financial statements is as follows:



	Year Ended Fiscal March
	2019			2018			2017
	Amount		Percent	Amount		Percent	Amount		Percent
	(Dollars in thousands)
Federal income tax based on statutory tax rate applied to income before taxes (a)	$	21,076	21.0	$	32,692	31.6	$	34,035	35.0
State income tax, net of federal income tax benefit		2,767	2.8		2,218	2.1		2,700	2.8
Tax Act (b)		—	—		4,707	4.5		—	—
Tax settlements and adjustments		(1,864)	(1.9)		—	—		—	—
Other		(1,371)	(1.4)		(98)	—		(1,017)	(1.1)
	$	20,608	20.5	$	39,519	38.2	$	35,718	36.7

_________________

(a)

For fiscal 2018, represents the blended rate of 35% for 9/12 of the year and 21% for 3/12 of the year.

(b)

Represents the net discrete adjustment to income tax expense primarily from the remeasurement of our net deferred tax assets at the lower U.S. corporate income tax rate.

The following is a rollforward of Monro’s liability for income taxes associated with unrecognized tax benefits:



	Dollars in thousands
Balance at March 26, 2016	$	6,929
Tax positions related to current year:
Additions		981
Reductions		—
Tax positions related to prior years:
Additions		66
Reductions		(352)
Settlements		—
Lapses in statutes of limitations		(732)
Balance at March 25, 2017		6,892
Tax positions related to current year:
Additions		447
Reductions		—
Tax positions related to prior years:
Additions		—
Reductions		(342)
Settlements		—
Lapses in statutes of limitations		(788)
Balance at March 31, 2018		6,209
Tax positions related to current year:
Additions		1,178
Reductions		—
Tax positions related to prior years:
Additions		166
Reductions		(6)
Settlements		—
Lapses in statutes of limitations		(1,123)
Balance at March 30, 2019	$	6,424

The total amount of unrecognized tax benefits was $6.4 million and $6.2 million at March 30, 2019 and March 31, 2018, respectively, the majority of which, if recognized, would affect the effective tax rate.

In the normal course of business, Monro provides for uncertain tax positions and the related interest and penalties, and adjusts its unrecognized tax benefits and accrued interest and penalties and, accordingly, we had approximately $.4 million of interest and penalties associated with uncertain tax benefits accrued as of March 30, 2019 and March 31, 2018.

We file U.S. federal income tax returns and income tax returns in various state jurisdictions. Monro’s fiscal 2018 U.S. federal tax year and various state tax years remain subject to income tax examinations by tax authorities.