12. INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted in the United States. The Tax Act significantly revised the U.S. tax code by, among other items, reducing the Company’s federal tax rate from 34% to 21%, providing for the full expensing of certain depreciable property and eliminating the corporate alternative minimum tax (AMT). GAAP requires companies to record the impact of the Tax Act in their financial statements for the period during which the Tax Act becomes law, even if provisions of the Tax Act become effective at a future date. In December, 2017 the SEC issued Staff Accounting Bulletin (“SAB”) 118, Income Tax Implications of the Tax Cuts and Jobs Act, which provides guidance on accounting for the impact of the Tax Act. In accordance with SAB 118, the income tax effect of those aspects of the Tax Act for which the accounting under ASC 740, Income Taxes, is complete must be recognized in a company’s financial statements. To the extent the impact is unknown, but a reasonable estimate can be made, a provisional estimate must be made. If a company cannot determine a provisional estimate to be included in the financial statements, a measurement period of up to one year is provided to finalize amounts to be reported. The associated provisional income tax benefit recorded by the Company for the period ending December 30, 2017 was $27,000, primarily related to the re-measurement of the Company’s deferred tax items.

The provision for income taxes is summarized as follows (amounts in thousands):


	2017		2016
Federal: Current	$	988	$	613
Deferred		27		1,284
State: Current		32		2
Deferred		(26)		249
	$	1,021	$	2,148

The percentage effect of an item on the statutory tax rate in a given year will fluctuate based upon the magnitude of the pre-tax profit or loss in that year. At December 30, 2017 the Company’s deferred tax items were revalued for the estimated impact of the Tax Act legislation. The effect of this revaluation was to reduce the Company’s effective tax rate 1.0%. The difference between the tax rate on income for financial statement purposes and the federal statutory tax rate was as follows:


	2017		2016
Statutory tax rate	34.0	%	34.0	%
Percentage depletion	(4.7)		(1.8)
Non-deductible expenses	1.7		1.0
Valuation allowance for tax assets	2.5		1.0
State income taxes, net of federal benefit	2.0		4.2
Domestic production deduction	(0.3)		(0.8)
Revaluation of deferred items for new Tax Act	(1.0)		—
Other	1.8		(0.8)
	36.0	%	36.8	%

For financial statement purposes, deferred tax assets and liabilities are recorded at a blend of the current statutory federal and states’ tax rates – 25.74% for 2017 year end and 37.96% for 2016 year end. The change in rates is due to the reduction in the federal income tax rate, effective in 2018, from 34% to 21%. The principal temporary differences and their related deferred taxes are as follows (amounts in thousands):


	2017		2016
Deferred tax assets
Reserves for self-insured losses	$	328	$	579
Accrued reclamation		1,386		1,945
Unfunded supplemental profit sharing plan liability		275		351
Asset valuation reserves		293		267
Future state tax credits		863		789
Net state operating loss carryforwards		126		167
Federal AMT carryforward		620		620
Other		701		873
		4,592		5,591
Deferred tax liabilities
Depreciation		859		1,013
Deferred development		1,298		1,057
Prepaid royalties		161		1,187
Other		458		588
		2,776		3,845
Net deferred tax asset before valuation allowance		1,816		1,746
Valuation allowance
Beginning balance		(130)		(73)
(Increase) decrease during the period		(70)		(57)
Ending Balance		(200)		(130)
Net deferred tax asset	$	1,616	$	1,616

At December 31, 2016 the Company carried a valuation reserve of $79,000 ($30,000 tax effected) related to the carry forward of charitable contribution deductions arising in prior years due to the uncertainty that the Company would be able to utilize these deductions prior to the expiration of their carry forward periods. The Company was able to utilize all charitable contribution carryforwards, arising from prior years, in its 2016 tax filing. The deduction of charitable contributions made during 2017 was limited by the level of taxable income; however, no valuation reserve was established for the amount carried forward as the Company expects to be able to utilize these deductions in future years. The Tax Act repeals AMT and allows any existing AMT credit carryforwards to be used to offset regular tax obligations for a three year period beginning in 2018. Any AMT credit carryforwards that are not utilized to offset regular tax obligations will be 100 percent refundable by 2021. For State purposes, net operating losses can be carried forward for various periods for the states that the Company is required to file in. Of the $869,000 of state tax credits recorded by the Company at December 30, 2017, $760,000 relates to California Enterprise Zone hiring credits earned in prior years. California has repealed the credit and limited its use to tax years through 2023. At December 30, 2017 and December 31, 2016 the Company carried valuation reserves of $303,000 ($200,000 tax effected) and $152,000 ($100,000), respectively, related to the carry forward of the California Enterprise Zone hiring credits due to the uncertainty that the Company will be able to utilize the credits prior to their expiration in 2023.

The realization of the deferred tax assets is subject to our ability to generate sufficient taxable income during the periods in which the temporary differences become realizable. In evaluating whether a valuation allowance is required, we consider all available positive and negative evidence, including prior operating results, the nature and reason of any losses, our forecast of future taxable income and the dates, if any, on which any deferred tax assets are expected to expire. These assumptions require a significant amount of judgment, including estimates of future taxable income. The estimates are based on our best judgment at the time made based on current and projected circumstances and conditions.

As a result of the evaluation of the realizability of our deferred tax assets as of December 30, 2017, we concluded that it was more likely than not that all of our deferred tax assets would be realized to the extent not reserved for by a valuation allowance.

The Company accounts for uncertainty in income taxes recognized in its financial statements by applying GAAP’s recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The financial statement effects of a tax position are initially recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold should initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon effective settlement with a taxing authority. There were no unrecognized tax benefits at either December 30, 2017 or December 31, 2016.

We file income tax returns in the United States Federal and various state jurisdictions. Federal and state income tax returns are subject to examination based upon the statute of limitations in effect for the various jurisdictions.