INCOME TAXES

On December 22, 2017 the Tax Cuts and Jobs Act (the “Tax Act”) was enacted by the U.S. Government. The Tax Act made significant changes to the U.S. tax code that affected the Company's fiscal year ending July 28, 2018, including, but not limited to, reducing the U.S. federal corporate statutory income tax rate from 35.0% to 21.0% effective January 1, 2018, and introducing bonus depreciation that allows for full expensing of qualified property.

As the Company’s fiscal year ended on July 28, 2018, the Company’s U.S. federal corporate statutory income tax rate was subject to a full year blended tax rate of 26.9% for fiscal 2018, and 21.0% for fiscal 2019 and subsequent fiscal years. As a result of the decrease in the U.S. federal corporate statutory rate, deferred tax balances were remeasured based on the rates at which they are expected to reverse in the future. In fiscal 2018, a benefit of $3,300 was recognized related to the remeasurement of the Company’s deferred tax balances, which is included in Income taxes on the consolidated statements of operations.

The components of the provision for income taxes are:



	2019			2018
Federal:
Current	$	7,669		$	5,546
Deferred	(1,149		)	(915		)

State:
Current	4,198			3,262
Deferred	(734		)	(135		)

	$	9,984		$	7,758

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:



	July 27, 2019			July 28, 2018
Deferred tax assets:
Leasing activities	$	7,816		$	7,396
Federal benefit of uncertain tax positions	—			182
Compensation related costs	4,750			2,795
Pension costs	1,474			1,673
Other	406			456

Total deferred tax assets	14,446			12,502

Deferred tax liabilities:
Tax over book depreciation	13,481			13,557
Patronage dividend receivable	3,270			3,281
Investment in partnerships	1,034			1,030
Other	123			47

Total deferred tax liabilities	17,908			17,915

Net deferred tax liability	$	(3,462	)	$	(5,413	)

Deferred income tax assets (liabilities) are included in the following captions on the consolidated balance sheets at July 27, 2019 and July 28, 2018:



	2019		2018
Other assets	1,406		646
Other liabilities	(4,868	)	(6,059	)

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In management’s opinion, in view of the Company’s previous, current and projected taxable income and reversal of deferred tax liabilities, such tax assets will more likely than not be fully realized. Accordingly, no valuation allowance was deemed to be required at July 27, 2019 and July 28, 2018.

The effective income tax rate differs from the statutory federal income tax rate as follows:



	2019		2018
Statutory federal income tax rate	21.0	%	26.9	%
State income taxes, net of federal tax benefit	9.8	%	7.0	%
Settlement of tax audits	(2.2	)%	—	%
Deferred tax revaluation due to Tax Act	—	%	(10.0	)%
Other	(0.5	)%	(0.3	)%

Effective income tax rate	28.1	%	23.6	%

In June 2019, the Company reached an agreement with the New Jersey Division of Taxation to settle an audit of fiscal years 2011 through 2015 for all applicable entities and fiscal years 2000 through 2014 related to a settlement agreement reached in February 2015 regarding nexus of certain subsidiaries. The Company recorded an income tax benefit of $777, net of federal taxes, in fiscal 2019 related to the settlement and to reverse remaining unrecognized tax benefits and related interest and penalties in excess of the settlement.

The New York Department of Taxation and Finance is currently auditing the fiscal 2018 tax year for all applicable entities. The Company is open to examination by the remaining relevant tax authorities with varying statutes of limitations, generally ranging from three to four years.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:



	2019			2018
Balance at beginning of year	$	648		$	648
Reductions based on settlement of tax audits	(648		)	—

Balance at end of year	$	—		$	648

The Company recognizes interest and penalties on income taxes in income tax expense. The Company recognized a benefit of $242 in fiscal 2019 related to interest and penalties on income taxes.