7. INCOME TAXES:

The components of income tax expense from operations for fiscal 2017 and fiscal 2016 consisted of the following:


	2017		2016
Current: Federal	$	2,348,725	$	3,355,335
Current: State		383,662		482,387
		2,732,387		3,837,722
Deferred: Federal		(223,283)		401,159
Deferred: State		(20,104)		36,119
		(243,387)		437,278
Income tax expense	$	2,489,000	$	4,275,000

The difference between the Company’s income tax expense in the accompanying consolidated financial statements and that which would be calculated using the statutory income tax rate of 35% for both fiscal 2017 and fiscal 2016 on income before income taxes is as follows:


	2017		2016
Tax at statutory rate	$	1,903,502	$	3,589,485
Nondeductible business expenses		402,980		368,002
State income taxes, net of federal tax benefit		244,587		345,323
Valuation allowance, net operating losses		—		6,260
Other		(62,069)		(34,070)
	$	2,489,000	$	4,275,000

Temporary differences between the financial statement carrying balances and tax basis of assets and liabilities giving rise to a net deferred tax asset liability at September 2017 and September 2016 relates to the following:


	2017		2016
Deferred tax assets:
Allowance for doubtful accounts	$	282,576	$	246,178
Accrued expenses		1,185,624		1,084,140
Inventory		502,042		464,648
Property and equipment		28,713		21,087
Net operating loss carry forwards - federal		195,675		241,717
Net operating loss carry forwards - state		592,559		592,559
Total gross deferred tax assets		2,787,189		2,650,329
Less: Valuation allowance		(592,559)		(592,559)
Total net deferred tax assets		2,194,630		2,057,770
Deferred tax liabilities:
Trade discounts		410,793		353,047
Property and equipment		1,395,560		1,618,875
Goodwill		1,381,953		1,308,729
Intangible assets		1,342,587		1,356,769
Total deferred tax liabilities		4,530,893		4,637,420
Total net deferred income tax liability	$	2,336,263	$	2,579,650

At September 2017, the Company had a $0.2 million noncurrent deferred tax asset related to federal net operating loss carryforwards. These federal net operating loss carryforwards totaled approximately $0.6 million and were primarily attributable to the Company’s fiscal 2002 purchase of Hawaiian Natural Water Company, Inc. (“HNWC”), a wholly owned subsidiary of the Company. The utilization of HNWC’s net operating losses is limited by Internal Revenue Code Section 382 to approximately $0.1 million per year through 2022.

At September 2017, the Company had a valuation allowance of approximately $0.6 million against certain state net operating losses, which more likely than not will not be utilized. The Company had no material unrecognized tax benefits, interest, or penalties during fiscal 2017 or fiscal 2016, and the Company does not anticipate any such items during the next twelve months. The Company’s policy is to record interest and penalties directly related to income taxes as income tax expense in the Consolidated Statements of Operations. The Company files income tax returns in the U.S. and various states and the tax years 2014 and forward remain open under U.S. and state statutes.