7. Income Taxes

The income tax provision from operations included in the consolidated statements of income consists of the following:


	Years Ended
	December 31,		December 31,
	2020		2019
	($000’s omitted)
Current:
Federal	$	(47)	$	455
State		(24)		45
		(71)		500
Deferred:
Federal		33		171
		33		171
	$	(38)	$	671

The reconciliation of the federal statutory income tax rate to the Company’s effective tax rate based upon the total income tax provision from operations is as follows:


	Years Ended
	December 31,		December 31,
	2020		2019

Federal statutory rate	21.0	%	21.0	%
Permanent non-deductible expenses	105.8	%	2.6	%
Business credits	(61.7)	%	(3.0)	%
ESOP dividend	0.0	%	(0.6)	%
Stock compensation	(7.6)	%	(0.1)	%
Foreign-derived intangible income deduction	(55.7)	%	(1.2)	%
State taxes, net of federal benefit	(28.7)	%	1.3	%
Other	(34.4)	%	1.5	%
	(61.3)	%	21.5	%

At December 31, 2020 and 2019, the deferred tax assets (liabilities) were comprised of the following:


	Years Ended
	December 31,		December 31,
	2020		2019
	($000’s omitted)
Deferred Tax Assets:
Inventories	$	455	$	473
Accrued employees compensation and benefits costs		397		148
Postretirement obligation (accumulated other comprehensive income)		360		298
Accrued arbitration award and related liability		—		324
State net operating loss and credit carryforwards		147		236
Bad debt reserve		40		71
Warranty reserve		80		88
Other		67		—
Total deferred tax assets		1,546		1,638
Valuation allowance		(147)		(236)
Net deferred tax assets		1,399		1,402

Deferred tax liabilities:
Prepaid expenses		(62)		(32)
Property, plant and equipment		(1,200)		(1,238)
Total deferred tax liabilities		(1,262)		(1,270)
Net deferred tax assets	$	137	$	132

In assessing the ability of the Company to realize the benefit of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based upon the level of historical taxable income, the opportunity for net operating loss carrybacks, and projections for future taxable income over the periods which deferred tax assets are deductible, management believes it is more likely than not the Company will generate sufficient taxable income to realize the benefits of these deductible differences at December 31, 2020, except for a valuation allowance of $147,000 ($236,000 – 2019) related to certain state net operating loss carryforwards, state tax credit carryforwards and other state net deferred tax assets. At December 31, 2020, the Company has net operating loss carryforwards with full valuation allowances from Pennsylvania of approximately $1,620,000, which is no longer a benefit to the Company at December 31, 2020 because they ceased to filing a tax return in Pennsylvania. The Company also has a New York state tax credit carryforward at December 31, 2020 of approximately $147,000 ($139,000 – 2019), which begins to expire in 2023.

There are no uncertain tax positions or unrecognized tax benefits for 2020 and 2019. The Company is subject to routine audits of its tax returns by the Internal Revenue Service and various state taxing authorities. During 2020, the 2017 federal tax retain was selected for examination by the Internal Revenue Service. The Company does not anticipate any material adjustments as a result of this examination. The 2017 through 2020 federal and state tax returns remain subject to examination.