9. INCOME TAXES

12 Months Ended

Dec. 31, 2016

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,
	2016			2015			2014
Federal:
Current	$	(1,192,764	)	$	2,656,870		$	3,656,356
Deferred		(296,045	)		287,755			848,666
Total Federal		(1,488,809	)		2,944,625			4,505,022
State & local:
Current		151,728			81,433			203,144
Deferred		(349,284	)		86,863			140,552
Total State & local		(197,556	)		168,296			343,696
Foreign
Current		164,950			13,391			46,911
Deferred		42,337			(41,969	)		255
Total Foreign		207,287			(28,578	)		47,166
Total	$	(1,479,078	)	$	3,084,343		$	4,895,884

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,
	2016			2015			2014
Expected expense at statutory rate	$	(1,270,003	)	$	3,404,159		$	5,147,234
Increase (decrease) in income taxes resulting from:
Exempt income from Dominican Republic operations due to tax holiday		(2,367,810	)		(2,816,963	)		(3,477,301	)
Tax on repatriated earnings from Dominican Republic operations		2,050,314			2,556,940			3,090,036
Impact of Canadian deemed dividend		7,353			-			12,703
State and local income taxes		(99,699	)		67,886			284,838
Section 199 manufacturing deduction		-			(194,498	)		(135,690	)
Meals and entertainment		100,288			98,082			91,475
Nondeductible penalties		3,847			5,998			1,563
Provision to return filing adjustments and other		96,632			(37,261	)		(118,974	)
Total	$	(1,479,078	)	$	3,084,343		$	4,895,884

Deferred income taxes recorded in the consolidated balance sheets at December 31, 2016 and 2015 consist of the following:

	December 31,
	2016			2015
Deferred tax assets:
Asset valuation allowances and accrued expenses	$	242,916		$	510,798
Inventories		491,371			563,815
State and local income taxes		302,929			425,179
Pension and deferred compensation		63,214			72,004
Net operating losses		736,519			650,620
Total deferred tax assets		1,836,949			2,222,416
Valuation allowances		(471,159	)		(569,459	)
Total deferred tax assets		1,365,790			1,652,957
Deferred tax liabilities:
Fixed assets		(1,676,813	)		(1,655,838	)
Intangible assets		(10,337,533	)		(11,185,988	)
Other assets		(337,972	)		(400,651	)
Tollgate tax on Lifestyle earnings		(379,271	)		(379,271	)
Total deferred tax liabilities		(12,731,589	)		(13,621,748	)
Net deferred tax liability	$	(11,365,800	)	$	(11,968,791	)
Deferred income taxes - current	$	1,633,353		$	1,031,818
Deferred income taxes - non-current		(12,999,153	)		(13,000,609	)
	$	(11,365,800	)	$	(11,968,791	)

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, 2016, we had approximately $19,205,000 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 $6,722,000.

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 2013. State jurisdictions that remain subject to examination range from 2012 to 2016. Foreign jurisdiction (Canada and Puerto Rico) tax returns that remain subject to examination range from 2011 to 2016.

Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of December 31, 2016 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.