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FEDERAL AND STATE INCOME TAXES
12 Months Ended
Dec. 25, 2021
FEDERAL AND STATE INCOME TAXES  
FEDERAL AND STATE INCOME TAXES

NOTE 13 - FEDERAL AND STATE INCOME TAXES

 

The components of our income tax expense for the years ended December 25, 2021 and December 26, 2020 are as follows (amounts in thousands):

 

 

2021

 

 

2020

 

Current:

 

 

 

 

 

 

State

 

 

60

 

 

 

103

 

Total current

 

 

60

 

 

 

103

 

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

(35 )

 

 

(25 )

State

 

 

35

 

 

 

25

 

Total deferred

 

 

-

 

 

 

-

 

Total income tax expense

 

$60

 

 

$103

 

 

The following is a reconciliation of expected income tax benefit to actual income tax expense for the years ended December 25, 2021 and December 26, 2020 (amounts in thousands):

 

 

 

2021

 

 

2020

 

Federal income tax (benefit) at statutory rate of 21%

 

$(1,181 )

 

$(110 )

State income tax, net of federal income tax effect

 

 

(43 )

 

 

64

 

Nondeductible expenses

 

 

(31 )

 

 

29

 

Nontaxable PPP Loan Forgiveness

 

 

(1,044 )

 

 

-

 

State RTA

 

 

(13 )

 

 

-

 

Prior year adjustments and true-ups

 

 

(32 )

 

 

36

 

Change in valuation allowance

 

 

2,404

 

 

 

84

 

Total tax expense

 

$60

 

 

$103

 

The components of the deferred tax asset (liability) consisted of the following at December 25, 2021 and December 26, 2020 (amounts in thousands):

 

 

 

2021

 

 

2020

 

Noncurrent Deferred tax assets

 

 

 

 

 

 

Federal and state net operating loss carryforward

 

$9,503

 

 

$7,036

 

Tax credit carryforwards

 

 

1,977

 

 

 

1,971

 

Allowance for uncollectible accounts

 

 

380

 

 

 

93

 

Accruals not yet deductible for tax purposes

 

 

488

 

 

 

613

 

Goodwill

 

 

236

 

 

 

364

 

Depreciation

 

 

-

 

 

 

3

 

Lease payable

 

 

992

 

 

 

390

 

Total noncurrent deferred tax assets

 

 

13,576

 

 

 

10,470

 

Less: Valuation allowance

 

 

(12,419 )

 

 

(10,016 )

Total noncurrent deferred tax assets, net

 

$1,157

 

 

$454

 

Noncurrent deferred tax liabilities:

 

 

 

 

 

 

 

 

Depreciation

 

 

(49 )

 

 

-

 

Other

 

 

(126 )

 

 

(70 )

Right to use asset

 

 

(982 )

 

 

(384 )

Total noncurrent deferred tax liabilities

 

 

(1,157 )

 

 

(454 )

Net deferred tax assets/deferred tax Liabilities

 

$-

 

 

$-

 

 

We account for uncertain tax positions in accordance with ASC 740. When uncertain tax positions exist, we recognize the tax benefit of the tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon technical merits of the tax positions as well as consideration of the available facts and circumstances. We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of December 25, 2021 and December 26, 2020, we do not have any significant uncertain tax positions.

 

We record a valuation allowance to reduce the carrying value of our deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will expire before realization of the benefit or future deductibility is not probable. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character and in the related jurisdiction in the future. In evaluating our ability to recover our deferred tax assets, we consider the available positive and negative evidence, including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In estimating future taxable income, we develop assumptions, including the amount of pretax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment. During 2021, after evaluating all available evidence, we recorded a valuation allowance on all net deferred tax assets.

 

For the year ended December 25, 2021, we recognized a total income tax expense of $60 thousand on a pretax book loss of $5.6 million compared to an income tax expense of $103 thousand on a pretax book loss of $0.5 million for the year ended December 26, 2020. As a result of permanent difference add-backs to taxable income related to the PPP Loan forgiveness and stock compensation, the tax expense decreased by $1.0 million and $31 thousand, respectively, which decreased the effective tax rate by 18.6% and 0.6%, respectively. An increase of $2.4 million in the valuation allowance decreased the effective tax rate by 42.8%. State income tax (net of Federal) expense in the amount of $43 thousand decreased the effective tax rate by 0.8% mainly due to Texas margins tax. Federal and state tax true-ups decreased tax expense in the amount of $44 thousand and decreased the effective tax rate by 0.8%.

 

As of December 25, 2021 the Company has a gross federal net operating loss carry-forward of approximately $41.4 million, which will begin to expire in 2032. Under the Tax Cuts and Jobs Act of 2017 (“TCJA”), net operating losses (“NOL’s”) generated in tax year 2018 and forward have an indefinite carryforward but are limited to 80% of taxable income when utilized. For NOL’s incurred in tax year 2017 and prior, the limitation to 80% of taxable income does not apply, but the NOL’s are subject to expiration.