Note 10 Income Taxes

The provision (benefit) for income taxes consists of:



(dollars in thousands)		2019		2018		2017
Current:
Federal	$	11,779	$	11,385	$	10,630
State		3,117		4,594		1,972
Deferred:
Federal		6,636		6,059		(34,659)
State		(871)		(2,640)		2,666
	$	20,661	$	19,398	$	(19,391)

The reconciliation of income taxes computed at the federal statutory rate of 21% in 2019 and 2018, respectively, and 35% in 2017.

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



(dollars in thousands)		2019		2018		2017
Income taxes at federal statutory rate	$	18,615	$	17,249	$	27,658
State income taxes, net of federal income tax benefit		1,333		639		1,306
Nondeductible employee-related expenses		1,974		768		1,828
2017 tax reform		-		657		(49,336)
Other		(1,261)		85		(847)
Provision for income taxes (effective tax rate 23.3%, 23.6% and (24.5)%, respectively)	$	20,661	$	19,398	$	(19,391)

The effective income tax rate was 23.3%, 23.6% and negative 24.5% in 2019, 2018, and 2017, respectively. The effective income tax rate differs from the federal statutory rate of 21% primarily due to state taxes. 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.

Cash paid for federal income taxes was $11.3 million, $4.5 million $12.0 million and in 2019, 2018 and 2017 respectively. Cash paid for state income taxes was $2.8 million, $2.1 million and $1.0 million in 2019, 2018 and 2017 respectively.

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 28, 2019 and December 29, 2018, are:



(dollars in thousands)		2019		2018
Deferred tax assets:
Accounts receivable	$	749	$	588
Compensated absences		-		355
Employment incentives		1,405		842
Employee benefit plans		4,853		4,914
General liability insurance		2,778		2,702
Postretirement benefit obligations		5,767		5,272
Net operating loss carryforwards		6,582		8,030
Other		8,136		7,967
Total deferred tax assets		30,270		30,670
Deferred tax liabilities:
Inventories		(13,072)		(9,828)
Unrealized gains on marketable securities		(2,851)		(1,809)
Nondeductible accruals and other		(5,252)		(5,274)
Depreciation		(106,136)		(104,552)
Total deferred tax liabilities		(127,311)		(121,463)
Net deferred tax liability	$	(97,041)	$	(90,793)

Note 10 Income Taxes (continued)

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



(dollars in thousands)		2019		2018
Unrecognized tax benefits at beginning of year	$	6,405	$	4,691
Increases based on tax positions related to the current year		1,769		1,714
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		(1,562)		-
Unrecognized tax benefits at end of year	$	6,612	$	6,405

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $1.8 million in 2019, $1.7 million in 2018 and $1.6 million in 2017.

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 2016 to 2019.

The Company has net operating loss carryforwards of $83.4 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.