FEDERAL AND STATE INCOME TAXES

12 Months Ended

Dec. 31, 2022

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 31, 2022 and December 25, 2021 are as follows (amounts in thousands):

	2022			2021
Current:
State		39			60
Total current		39			60
Deferred:
Federal		(37	)		(35	)
State		37			35
Total deferred		—			—
Total income tax expense	$	39		$	60

The following is a reconciliation of expected income tax benefit to actual income tax expense for the years ended December 31, 2022 and December 25, 2021 (amounts in thousands):

	2022			2021
Federal income tax (benefit) at statutory rates	$	(3,888	)	$	(1,181	)
Foreign tax rate adjustment		122			—
State income tax, net of federal income tax effect		(256	)		(43	)
Nondeductible expenses		188			(31	)
Nontaxable PPP Loan Forgiveness		—			(1,044	)
State RTA		30			(13	)
Prior year adjustments and true-ups		61			(32	)
Change in valuation allowance		3,782			2,404
Total tax expense	$	39		$	60

The components of the deferred tax asset (liability) consisted of the following as of December 31, 2022 and December 25, 2021 (amounts in thousands):

	2022			2021
Noncurrent Deferred tax assets
Federal and state net operating loss carryforward	$	12,006		$	9,503
Tax credit carryforwards		1,977			1,977
Allowance for uncollectible accounts		491			380
Accruals not yet deductible for tax purposes		548			488
Goodwill		177			236
Lease payable		1,897			992
Capitalized R&D expenses		1,086			—
Total noncurrent deferred tax assets		18,182			13,576
Less: Valuation allowance		(16,166	)		(12,419	)
Total noncurrent deferred tax assets, net	$	2,016		$	1,157
Noncurrent deferred tax liabilities:
Depreciation		(10	)		(49	)
Other		(116	)		(126	)
Right to use asset		(1,890	)		(982	)
Total noncurrent deferred tax liabilities		(2,016	)		(1,157	)
Net deferred tax assets/deferred tax Liabilities	$	—		$	—

We account for deferred income taxes in accordance with FASB ASC Topic 740 (“ASC 740”), which provides for deferred taxes using an asset and liability method. We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax bases of assets and liabilities including net operating loss and tax credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The provision for income taxes represents the current taxes payable or refundable for the period plus or minus the tax effect of the net change in the deferred tax assets and liabilities during the period. Tax law and rate changes are reflected in income in the period such changes are enacted.  

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 31, 2022 and December 25, 2021, we do not have any significant uncertain tax positions. 

We record a valuation allowance to reduce previously recorded tax assets when it becomes more-likely-than-not such asset will not be realized. We evaluate based on all available evidence, both positive and negative, regarding historical operating results, including the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.

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 2022, after evaluating all available evidence, we recorded a valuation allowance on all net deferred tax assets.

For the year ended December 31, 2022, we recognized a total income tax expense of $39 thousand on a pretax book loss of $18.5 million compared to an income tax expense of $60 thousand on a pretax book loss of $5.6 million for the year ended December 25, 2021. As a result of permanent difference add-backs to taxable income related to meals and entertainment the tax expense increased by $188 thousand, which decreased the effective tax rate by 1.02%. An increase of $3.8 million in the valuation allowance decreased the effective tax rate by 20.5%. State income tax (net of Federal) expense in the amount of $256 thousand increased the effective tax rate by 1.39% mainly due to Texas margins tax. Federal and state tax true-ups decreased tax expense in the amount of $91 thousand and decreased the effective tax rate by 0.29%.

As of December 31, 2022, the Company has a gross federal net operating loss carry-forward of approximately $52.9 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.