Income Taxes

Income Tax Provision

The Company’s income tax expense is computed based on the federal statutory rates and the state statutory rates, net of related federal benefit. The Company’s provision for income taxes consists of the following (in thousands):



	52 Weeks Ended February 1, 2020			52 Weeks Ended February 2, 2019		53 Weeks Ended February 3, 2018
Current tax expense (benefit):
Federal	$	(225	)	$	708	$	5,141
State	612			810		876
Deferred tax expense (benefit):
Federal	362			455		(1,207		)
State	(71		)	58		(290		)
	$	678		$	2,031	$	4,520

Income tax expense differs from the amount computed by applying the statutory federal income tax rate to pre-tax (loss) income. A reconciliation of income tax expense at the statutory federal income tax rate to the amount provided is as follows (in thousands):



	52 Weeks Ended February 1, 2020			52 Weeks Ended February 2, 2019			53 Weeks Ended February 3, 2018
Tax at federal statutory rate	$	(11,043	)	$	1,220		$	3,308
State income taxes, net of federal benefit	(1,456		)	651			559
Tax credits	(192		)	(437		)	(174		)
Enactment of tax legislation	—			—			419
Unrecognized tax positions	—			—			(185		)
Stock based compensation programs	1,162			545			575
Valuation allowance	12,035			—			—
Other	172			52			18
Income tax expense	$	678		$	2,031		$	4,520

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 (in thousands):



	February 1, 2020			February 2, 2019
Deferred tax assets:
Accruals	$	2,622		$	2,914
Inventory valuation	739			664
State tax credit carryforwards	148			144
Federal and state net operating loss carryforwards	7,462			85
Impairment	4,809			—
Operating lease liabilities	64,819			—
Deferred rent	—			3,755
Other	2,505			3,294
Total deferred tax assets	83,104			10,856
Valuation allowance for deferred tax assets	(12,145		)	(83		)
Net deferred tax assets	70,959			10,773
Deferred tax liabilities:
Depreciation	(16,834		)	(8,352		)
Operating lease right-of-use assets	(51,974		)	—
Prepaid assets	(626		)	(718		)
Total deferred tax liabilities	(69,434		)	(9,070		)
Net deferred tax assets	$	1,525		$	1,703

On December 22, 2017 the U.S. Government enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to, reducing the U.S. federal corporate rate from 35% to 21% effective as of January 1, 2018. This change required the Company to re-measure the Company’s deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% for federal income tax purposes. As permitted by the SEC Staff Accounting Bulletin 118, “Income Tax Accounting Implications of the Tax Cut and Jobs Act”, the Company recorded a provisional amount of $419,000, which was included as a component of income tax expense from continuing operations for the year ended February 3, 2018. The Company subsequently finalized its accounting analysis based on the guidance, interpretations, and data available as of February 2, 2019. Adjustments made for the year ended February 2, 2019 upon finalization of the Company’s accounting analysis were not material to the Company’s consolidated financial statements.

As of February 1, 2020, the Company has $30.0 million of federal and $21.4 million of state net operating loss carry-forwards available to offset future taxable income. Federal net operating loss carry-forwards do not expire, and state net operating loss carry-forwards expire in years 2034 through 2039. As of February 1, 2020, the Company has state tax credit carryforwards of approximately $187,000 that expire in years 2023 through 2025.

Future utilization of the deferred tax assets is evaluated by the Company and any valuation allowance is adjusted accordingly. For fiscal 2019, the Company established a valuation allowance against its federal and consolidated deferred tax assets, primarily net operating loss carryforwards, due to uncertainty regarding their realization. Accordingly, the Company has established a valuation allowance of $12.1 million and $0.1 million with respect to the deferred tax assets as of February 1, 2020 and February 2, 2019, respectively. Adjustments could be required in the future if the Company estimates that the amount of deferred tax assets to be realized is more or less than the net amount the Company has recorded. Any decrease in the valuation allowance could have the effect of increasing or decreasing the income tax provision based on the nature of the deferred tax asset deemed realizable in the period in which such a determination is made.

The Company and one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by authorities for years prior to 2016. With few exceptions, the Company is no longer subject to state and local income tax examinations for years prior to 2013. The Company is not currently engaged in any U.S. federal, state or local income tax examinations.

The Company had no unrecognized tax benefits as of February 1, 2020 and February 2, 2019. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. The Company had no amounts accrued for the payment of interest and penalties associated with unrecognized tax benefits as of February 1, 2020 and February 2, 2019.