10. TAXES

The Company accounts for income taxes in accordance with the accounting standard for “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred income taxes have been provided for the temporary differences between the financial reporting and the income tax basis of the Company’s assets and liabilities by applying enacted statutory tax rates applicable to future years to the basis differences.

A breakdown of our income tax expense (benefit) for the years ended December 31 is as follows:


($ in thousands)		2019		2018
Federal:
Current	$	3,706	$	2,449
Deferred		336		475
Total Federal		4,042		2,924

State & local:
Current		497		205
Deferred		(8)		142
Total State & local		489		347

Foreign
Current		238		75
Deferred		-		-
Total Foreign		238		75

Total	$	4,769	$	3,346

A reconciliation of recorded Federal income tax expense to the expected expense computed by applying the applicable Federal statutory rate for all periods to income before income taxes follows:



		Years Ended December 31,
($ in thousands)		2019		2018
Expected expense at statutory rate (21% in 2019, 21% in 2018)	$	4,682	$	3,766

Increase (decrease) in income taxes resulting from:
Toll tax on CFC accumulated earnings and profits		-		(561)
Exempt income from Dominican Republic operations due to tax holiday		(821)		(1,005)
GILTI tax		410		515
Impact of Canadian deemed dividend		-		-
State and local income taxes		369		313
Foreign Tax Credit/Expense		(278)		-
Meals and entertainment		48		43
Nondeductible penalties		-		1
Provision to return filing adjustments and other		359		274
Total	$	4,769	$	3,346

Deferred income taxes recorded in the Consolidated Balance Sheets at December 31, 2019 and 2018 consist of the following:


($ in thousands)		2019		2018
Deferred tax assets:
Asset reserves and accrued expenses	$	526	$	805
Inventories		471		508
State and local income taxes		192		238
Pension and deferred compensation		27		37
Net operating losses		388		424
Total deferred tax assets		1,604		2,012
Valuation allowances		(372)		(421)
Total deferred tax assets		1,232		1,591

Deferred tax liabilities:
Fixed assets		1,519		1,509
Intangible assets		6,756		6,883
Other assets		231		213
Tollgate tax on Lifestyle earnings		228		228
State and local income taxes		606		538
Total deferred tax liabilities		9,340		9,371

Net deferred tax liability	$	8,108	$	7,780

The valuation allowance is related to certain state and local income tax net operating loss carry forwards.

We have provided Puerto Rico tollgate taxes on approximately $3,684,000 of accumulated undistributed earnings of Lifestyle prior to the fiscal year ended June 30, 1994, that would be payable if such earnings were repatriated to the United States. In 2001, we received abatement for Puerto Rico tollgate taxes on all earnings subsequent to June 30, 1994, thus no other provision for tollgate tax has been made on earnings after that date. If we repatriate the earnings from Lifestyle, $227,563 of tollgate tax would be due.

We are subject to tax examinations in various taxing jurisdictions. The earliest exam years open for examination are as follows:


		Earliest Exam Year
Taxing Authority Jurisdiction:
U.S. Federal		2016
Various U.S. States		2015
Puerto Rico (U.S. Territory)		2014
Canada		2014

Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of December 31, 2019, no such expenses were recognized during the year. We do not believe there will be any material changes in our uncertain tax positions over the next 12 months.

Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Under this guidance, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard. We did not have any unrecognized tax benefits and there was no effect on our financial condition or results of operations.