Note

. Income Taxes

Income (loss) before income taxes for each of the

two

years in the period ended

December

31,

2016

was subject to taxation under United States jurisdictions only. The provision for income taxes consists of the following (in thousands):

	2016			2015
Current:
Federal	$	(2	)	$	(3	)
State		127			62
		125			59
Deferred:
Federal		-			-
State		-			-
		-			-
	$	125		$	59

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at

December

31,

2016

and

2015

are as follows (in thousands):

	2016			2015
Deferred tax assets:
Accounts receivable, allowance for doubtful accounts	$	87		$	81
Reserves not deductible until paid		300			289
Net operating loss carryforwards
Federal		2,764			2,654
State		537			768
Federal tax credit		398			338
Other		12			11
Gross deferred tax assets		4,098			4,141
Less valuation allowance		(1,453	)		(1,651	)
Deferred tax assets net of valuation allowance	$	2,645		$	2,490

Deferred tax liabilities:
Property and equipment	$	(2,399	)	$	(2,307	)
Other		(238	)		(175	)
Gross deferred tax liabilities	$	(2,637	)	$	(2,482	)
Net deferred tax asset	$	8		$	8

The

$2,637,000

of deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as the temporary differences giving rise to the

$2,645,000

of deferred tax assets. Avalon has not provided a valuation allowance on the amount of deferred tax assets that it estimates will be utilized. If future taxable income is less than the amount that has been assumed in assessing the recoverability of the deferred tax assets, then an increase in the valuation allowance will be required, with a corresponding increase to income tax expense. Likewise, should Avalon ascertain in the future that it is more likely than not that deferred tax assets will be realized in excess of the net deferred tax assets, all or a portion of the

$1,453,000

valuation allowance as of

December

31,

2016,

would be reversed as a benefit to the provision for income taxes in the period such determination was made.

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income (loss) before income taxes as a result of the following differences (in thousands):

	2016			2015
Loss before income taxes	$	(284	)	$	(1,163	)
Less net loss attributable to non-controlling interest in subsidiary		(340	)		(510	)
Income (loss) before income taxes attributable to Avalon Holdings Corporation common shareholders		56			(653	)
Federal statutory rate		35	%		35	%
		20			(229	)
State income taxes, net of federal income tax benefits		82			38
Change in valuation allowance		(198	)		233
Increase in available federal tax credit		(60	)		(29	)
Decrease in capital loss carryforward		-			10
Other nondeductible expenses		41			44
Decrease (increase) in net operating loss carryforward:
State		231			(42	)
Federal		5			(8	)
Other, net		4			42
	$	125		$	59

Avalon is subject to income taxes in the U.S. federal and various states jurisdictions. With few exceptions, Avalon is no longer subject to U.S. federal, state and local income tax examinations by taxing authorities for the years before

2012.

Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively. There were

accruals for the payment of interest and penalties for

2016

and

2015.

Avalon made net income tax payments of approximately

$54,000

and

$94,000

2016

and

2015,

respectively. At

December

31,

2016,

Avalon has taxable loss carryforwards for federal income tax purposes aggregating approximately

$8,146,000

which are available to offset future federal taxable income. These carryforwards expire in

2021

through

2036.

In addition, at

December

31,

2016,

certain subsidiaries of Avalon have net operating loss carryforwards for state purposes of approximately

$8,148,000

which are available to offset future state taxable income. These carryforwards expire at various dates through

2036.

A valuation allowance has been provided because it is more likely than not that the deferred tax assets relating to certain of the federal and state loss carryforwards will not be realized.