Income Taxes

12 Months Ended

May 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense (benefit) consisted of the following: 

	Fiscal year ended
	May 30, 2020		June 1, 2019		June 2, 2018
Current:
Federal	$	(6,750)	$	8,160	$	18,560
State	(1,800)		1,460		6,390
	(8,550)		9,620		24,950
Deferred:
Federal	8,872		4,843		11,038
Enacted rate change	—		—		(42,973)
State	1,409		1,280		(1,874)
	10,281		6,123		(33,809)
	$	1,731	$	15,743	$	(8,859)

Significant components of the Company’s deferred tax liabilities and assets were as follows:

	May 30, 2020		June 1, 2019
Deferred tax liabilities:
Property, plant and equipment	$	60,645	$	49,275
Inventories	28,075		27,750
Investment in affiliates	8,099		7,609
Other comprehensive income	214		324
Other	5,002		2,596
Total deferred tax liabilities	102,035		87,554
Deferred tax assets:
Accrued expenses	3,376		2,170
State operating loss carryforwards	792		133
Other	5,099		2,654
Total deferred tax assets	9,267		4,957
Net deferred tax liabilities	$	92,768	$	82,597

The differences between income tax expense (benefit) at the Company’s effective income tax rate and income tax expense at the statutory federal income tax rate were as follows:

	Fiscal year end
	May 30, 2020		June 1, 2019		June 2, 2018
Statutory federal income tax	$	4,226	$	14,694	$	34,105
State income taxes, net	(309)		2,164		3,200
Domestic manufacturers deduction	—		—		(2,545)
Enacted rate change	—		—		(42,973)
Tax exempt interest income	(111)		(197)		(101)
Benefit of net operating loss carryback provision	(2,357)		—		—
Other, net	282		(918)		(545)
	$	1,731	$	15,743	$	(8,859)

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act") was enacted. The CARES Act contains several income tax provisions, as well as other measures, that are intended to assist businesses impacted by the economic effects of the COVID-19 pandemic. The most significant provision of the CARES Act that will materially affect our accounting for income taxes includes a five-year carryback allowance for taxable net operating losses generated in tax years 2018 through 2020, our fiscal years 2019 through 2021. Previously, the Tax Cut and Jobs Act, enacted on December 22, 2017, disallowed the carrying back of taxable net operating losses to offset prior years’ taxable income.

Our financial statements for the fiscal year ended May 30, 2020 were materially affected by the changes enacted by the CARES Act. U.S. GAAP requires that the effects from changes in tax laws be recognized in the period in which the new legislation is enacted, which for the CARES Act is the Company’s fourth quarter of fiscal 2020. As a result of the applicable accounting guidance and the provisions enacted by the CARES Act, our income tax provision for the fourth quarter of fiscal 2020 reflects the carryback of taxable net operating losses generated during periods in which the statutory federal income tax rate was 21% to periods in which the statutory federal income tax rate was

35%. Due to the difference in statutory rates, we recorded a $3.0 million discrete income tax benefit related to the carryback provisions during the thirteen weeks ended May 30, 2020. Because the net operating losses were carried back to years in which we initially reduced our taxable income using the Domestic Production Activities Deduction, we recorded a partially offsetting $684 thousand discrete income tax expense during the thirteen weeks ended May 30, 2020 to account for the reduced taxable income.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

We are under audit by the Internal Revenue Service (IRS) for the fiscal years 2013 through 2015. Although we are subject to income tax in many jurisdictions within the U.S., we are currently not under audit by any state and local tax authorities. As of May 30, 2020, the IRS has proposed adjustments related to the Company’s research and development credits claimed during the years under audit. Management is currently evaluating those proposed adjustments and does not anticipate the adjustments would result in a material change to its consolidated financial statements. However, the Company believes it is reasonably possible that a decrease of up to $453 thousand in previously recognized tax benefits related to research and development credits may be necessary within the coming year. Tax periods for all years beginning with fiscal year 2013 remain open to examination by federal and state taxing jurisdictions to which we are subject.