9. INCOME TAXES

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

9. INCOME 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 is as follows:

	Years Ended December 31,
	2015			2014		2013
Federal:
Current	$	2,656,870		$	3,656,356	$	2,540,701
Deferred		287,755			848,666		778,213
Total Federal		2,944,625			4,505,022		3,318,914
State & local:
Current		81,433			203,144		109,254
Deferred		86,863			140,552		(29,619	)
Total State & local		168,296			343,696		79,635
Foreign
Current		13,391			46,911		42,450
Deferred		(41,969	)		255		1,769
Total Foreign		(28,578	)		47,166		44,219
Total	$	3,084,343		$	4,895,884	$	3,442,768

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,
	2015			2014			2013
Expected expense at statutory rate	$	3,404,159		$	5,147,234		$	3,775,418
Increase (decrease) in income taxes resulting from:
Exempt income from Dominican Republic operations due to tax holiday		(2,816,963	)		(3,477,301	)		(1,871,847	)
Tax on repatriated earnings from Dominican Republic operations		2,556,940			3,090,036			1,592,238
Impact of Canadian deemed dividend		-			12,703			9,712
State and local income taxes		67,886			284,838			45,948
Section 199 manufacturing deduction		(194,498	)		(135,690	)		(51,396	)
Meals and entertainment		98,082			91,475			76,465
Nondeductible penalties		5,998			1,563			1,500
Provision to return filing adjustments and other		(37,261	)		(118,974	)		(135,270	)
Total	$	3,084,343		$	4,895,884		$	3,442,768

Deferred income taxes recorded in the consolidated balance sheets at December 31, 2015 and 2014 consist of the following:

	December 31,
	2015			2014
Deferred tax assets:
Asset valuation allowances and accrued expenses	$	510,798		$	776,416
Inventories		563,815			705,028
State and local income taxes		425,179			394,776
Pension and deferred compensation		72,004			80,969
Net operating losses		650,620			575,702
Total deferred tax assets		2,222,416			2,532,891
Valuation allowances		(569,459	)		(569,881	)
Total deferred tax assets		1,652,957			1,963,010
Deferred tax liabilities:
Fixed assets		(1,655,838	)		(1,736,042	)
Intangible assets		(11,185,988	)		(11,001,289	)
Other assets		(400,651	)		(482,549	)
Tollgate tax on Lifestyle earnings		(379,271	)		(379,271	)
Total deferred tax liabilities		(13,621,748	)		(13,599,151	)
Net deferred tax liability	$	(11,968,791	)	$	(11,636,141	)
Deferred income taxes - current	$	1,031,818		$	1,291,907
Deferred income taxes - non-current		(13,000,609	)		(12,928,048	)
	$	(11,968,791	)	$	(11,636,141	)

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, approximately $379,000 of tollgate tax would be due.

As of December 31, 2015, we had approximately $18,323,000 of undistributed earnings from non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. If the Five Star undistributed earnings were distributed to the Company in the form of dividends, the related taxes on such distributions would be approximately $6,413,000.

We file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. We are no longer subject to U.S. Federal tax examinations for years before 2012. In 2014, we were subjected to an IRS examination for our consolidated U.S. Federal return for the year 2011. There were no adjustments to our return as a result of that examination. State jurisdictions that remain subject to examination range from 2011 to 2015. Foreign jurisdiction (Canada and Puerto Rico) tax returns that remain subject to examination range from 2010 to 2015.

Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of December 31, 2015 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.  The Company did not have any unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing this standard.