Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

6. Income Taxes

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

	2017		2016
	($000’s omitted)
Current:
Federal	$	675	$	691
State		1		(1	)
		676		690
Deferred:
Federal		82		27
State		-		-
		82		27
	$	758	$	717

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:

	2017			2016
Federal statutory rate		34.0	%		34.0	%
Business credits		-4.8	%		-2.2	%
ESOP dividend		-1.4	%		-1.2	%
Domestic production activities deduction		-2.4	%		-1.9	%
Stock compensation		-1.9	%		0.0	%
Revaluation of Deferred Taxes for Federal Tax Rate Change		12.6	%		0.0	%
Other		0.4	%		0.3	%
		36.5	%		29.0	%

At December 21, 2017 and 2016, the deferred tax assets (liabilities) were comprised of the following:

	2017			2016
	($000’s omitted)
Deferred Tax Assets:
Inventories	$	406		$	604
Accrued employees compensation and benefits costs		430			696
Accrued arbitration award and related liability		268			160
Net operating loss and credit carryforwards		269			244
Bad debt reserve		33			26
Other		41			23
Minimum pension liability		9			10
Total deferred tax assets		1,456			1,763
Valuation allowance		(279	)		(253	)
Net deferred tax asset		1,177			1,510
Deferred tax liabilities:
Property, plant and equipment		(768	)		(1,019	)
Total deferred tax liabilities		(768	)		(1,019	)
Net deferred tax asset	$	409		$	491

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, 2017, except for a valuation allowance of $279,000 ($253,000 – 2016) related to certain state net operating loss carryforwards, state tax credit carryforwards and other state net deferred tax assets. At December 31, 2017, the Company has net operating loss carryforwards with full valuation allowances from Pennsylvania of approximately $2,240,000 ($2,240,000 – 2016), which begin to expire in 2019, and Arkansas of approximately $31,000 ($839,000 – 2016), which begin to expire in 2018, respectively. The Company also has a New York state tax credit carryforward at December 31, 2017 of approximately $115,000 ($97,000 – 2016), which begins to expire in 2024.

There are no uncertain tax positions or unrecognized tax benefits for 2017 and 2016. The Company is subject to routine audits of its tax returns by the Internal Revenue Service and various state taxing authorities. The 2014 through 2016 Federal and state tax returns remain subject to examination.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (3) changing rules related to usage and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017; (4) eliminating U.S. federal income taxes on dividends from foreign subsidiaries for tax years beginning after December 31, 2017; and (5) implementing a territorial tax system and imposing a transition toll tax on deemed repatriated earnings of foreign subsidiaries.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities and included these amounts in its financial statements for the year ended December 31, 2017. As of December 31, 2017, the Company has completed most of its accounting for the tax effects of the Act. If revisions are needed as new information becomes available, the final determination of the deemed re-measurement of the deferred assets and liabilities or other applicable provisions of the Tax Act will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act.

The deferred federal income tax expense for 2017 includes a one-time, non-cash expense of $261,000 for the revaluation of the Company’s net deferred tax asset as a result of the reduction in the corporate tax rate for future years.