Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

On December 22, 2017, the United States enacted significant changes to the U.S. tax law following the passage and signing of H.R.1, “An Act to Provide the Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (previously known as “The Tax Cuts and Jobs Act”). In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC Update).” This ASU added the SEC guidance released on December 22, 2017 regarding the income tax accounting implication of the Tax Cuts and Jobs Act to ASC Topic 740. During 2017, the Company recorded income tax expense of $0.3 million to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%. As of December 31, 2018, the Company completed its analysis of its accounting for the income tax effects of tax reform and as a result no additional adjustments were recorded.

The provision (benefit) for income taxes consists of:

	Year Ended December 31,
	2018			2017		2016
	(In thousands)
Current:
Federal	$	3,041		$	1,280	$	(1,285	)
State		658			159		(95	)
Total current		3,699			1,439		(1,380	)
Deferred:
Federal		(1,246	)		1,259		13
State		(98	)		55		(7	)
Total deferred		(1,344	)		1,314		6
Total	$	2,355		$	2,753	$	(1,374	)

A reconciliation of the U.S. Federal statutory tax rate to the effective tax rate on income (loss) before taxes is as follows:

	Year Ended December 31,
	2018			2017			2016
Federal statutory rate		21.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		4.3			4.2			1.7
Impairment, non-deductible portion		0.1			—			(6.6	)
Share-based compensation		1.2			15.2			(9.0	)
Non-deductible items		2.1			4.6			(3.9	)
Valuation allowance		(9.5	)		41.0			—
Tax reform rate change		—			12.9			—
Other		2.2			(4.1	)		1.4
Total effective tax rate		21.4	%		108.8	%		18.6	%

The share-based compensation resulted in incremental income tax expense, because the grant date fair value of share-based payments exceeded the actual tax deductions realized, either upon exercise or vesting or due to forfeitures. Any future net deficits arising from stock-based compensation transactions will result in incremental income tax expense, and will likely negatively impact the effective tax rate.

Significant components of the Company’s deferred taxes were as follows:

	Year Ended  December 31,
	2018		2017
	(In thousands)
Deferred tax assets:
Uniform capitalization adjustment	$	1,469	$	1,272
Inventory valuation		1,179		1,334
Accounts receivable allowance		45		51
Stock compensation expense		681		725
Property and equipment		31		62
Other		548		134
Total deferred tax assets		3,953		3,578
Deferred tax liabilities
Goodwill		649		460
Intangibles		2,315		2,385
Other		59		109
Total deferred tax liabilities		3,023		2,954
Less: Valuation allowance		—		1,038
Net deferred tax assets/(liabilities)	$	930	$	(414	)

A valuation allowance for deferred tax assets is recognized when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized. To assess that likelihood, the Company uses its current financial position, results of operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies, to determine whether a valuation allowance is required. The result of the Company’s assessment is that it is more likely than not that the Company will generate sufficient taxable income to utilize the deferred tax assets. Therefore, the Company no longer requires a valuation allowance.

The Company does not have any unrecognized tax benefits recorded at December 2018, 2017 and 2016. The Company recognizes interest on any tax issue as a component of interest expense and any related penalties in other operating expenses. As of December 31, 2018, 2017 and 2016, the Company recorded no provision for interest or penalties related to uncertain tax positions. The tax years 2014 through 2018 remain open to examination by the major taxing jurisdictions to which the Company is subject.