Note 10 Income Taxes

The provision (benefit) for income taxes consists of:



(dollars in thousands)		2018		2017		2016
Current:
Federal	$	11,385	$	10,630	$	25,908
State		4,594		1,972		5,888
Deferred:
Federal		6,059		(34,659)		6,020
State		(2,640)		2,666		(317)
	$	19,398	$	(19,391)	$	37,499

The reconciliation of income taxes computed at the federal statutory rate of 21% in 2018 and 35% in 2017 and 2016 respectively.

Ending deferred tax liability has been computed at the federal statutory rate of 21% due to the Tax Reform.



(dollars in thousands)		2018		2017		2016
Income taxes at federal statutory rate	$	17,249	$	27,658	$	43,631
State income taxes, net of federal income tax benefit		639		1,306		2,413
Deferred tax on gain on bargain purchase		-		-		(8,358)
Nondeductible employee-related expenses		768		1,828		-
2017 tax reform		657		(49,336)		-
Other		85		(847)		(187)
Provision for income taxes (effective tax rate 23.6%, (24.5)% and 30.1%, respectively)	$	19,398	$	(19,391)	$	37,499

The effective income tax rate was 23.6%, negative 24.5% and 30.1% in 2018, 2017, and 2016, respectively. The effective income tax rate differs from the federal statutory rate of 21% primarily due Nondeductible employee expenses. On December 22, 2017, the U.S. Government enacted the Tax Cuts and Jobs Act (the “Tax Reform”). The Tax Reform significantly impacted the Company’s effective income tax rate by reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018 and allowing immediate expensing of qualified assets placed into service after September 27, 2017. Other elements of the Tax Reform have minor impacts, however the above mentioned decreased deferred income tax by $49.3 million during 2017. The effective income tax rate decreased in 2016 due to the impact of the bargain purchase gain on the 38 locations being included in the overall gain calculation and not in income tax expense. The effective tax rate excluding the bargain purchase gain was 37.2%.

Cash paid for federal income taxes was $4.5 million, $12.0 million $27.3 million and in 2018, 2017and 2016 respectively. Cash paid for state income taxes was $2.1 million, $1.0 million and $3.7 million in 2018, 2017 and 2016 respectively.

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 29, 2018 and December 30, 2017, are:



(dollars in thousands)		2018		2017
Deferred tax assets:
Accounts receivable	$	588	$	542
Compensated absences		355		848
Employment incentives		842		388
Employee benefit plans		4,914		5,581
General liability insurance		2,702		2,991
Postretirement benefit obligations		5,272		5,365
Net operating loss carryforwards		8,030		7,745
Other		7,967		4,373
Total deferred tax assets		30,670		27,833
Deferred tax liabilities:
Inventories		(9,828)		(8,026)
Unrealized gains on marketable securities		(1,809)		(2,310)
Nondeductible accruals and other		(5,274)		(5,160)
Depreciation		(104,552)		(99,759)
Total deferred tax liabilities		(121,463)		(115,255)
Net deferred tax liability	$	(90,793)	$	(87,422)

Note 10 Income Taxes (continued)

The following table summarizes the activity related to the Company’s unrecognized tax benefits:



(dollars in thousands)		2018		2017
Unrecognized tax benefits at beginning of year	$	4,691	$	3,124
Increases based on tax positions related to the current year		1,714		1,567
Additions for tax positions of prior year		-		-
Reductions for tax positions of prior years		-		-
Settlements		-		-
Expiration of the statute of limitations for assessment of taxes		-		-
Unrecognized tax benefits at end of year	$	6,405	$	4,691

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $1,714,000 in 2018, $1,567,000 in 2017 and $1,860,000 in 2016.

The Company or one of its subsidiaries files tax returns in the United States and various state jurisdictions. The tax years subject to examination in the United State and in Pennsylvania, where the majority of the Company's revenues are generated, are 2015 to 2018.

The Company has net operating loss carryforwards of $101.8 million available for state income tax purposes. The net operating losses will begin to expire starting in 2027. The Company expects to fully utilize these net operating loss carryforwards.