Note 10 - Income Taxes

12 Months Ended

Apr. 03, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 10 – Income Taxes

The Company’s income tax provision for the fiscal years ended April 3, 2022 and March 28, 2021 is summarized below (in thousands):

	Fiscal year ended April 3, 2022
	Current			Deferred		Total
Income tax expense on current year income:
Federal	$	542		$	1,398	$	1,940
State		194			328		522
Foreign		11			-		11
Total income tax expense on current year income		747			1,726		2,473
Income tax expense (benefit) - discrete items:
Reserve for unrecognized tax benefits		59			-		59
Adjustment to prior year provision		(41	)		-		(41	)
Net excess tax benefit related to stock-based compensation		(83	)		-		(83	)
Income tax benefit - discrete items		(65	)		-		(65	)
Total income tax expense	$	682		$	1,726	$	2,408

	Fiscal year ended March 28, 2021
	Current			Deferred			Total
Income tax expense on current year income:
Federal	$	1,631		$	(216	)	$	1,415
State		479			(51	)		428
Foreign		10			-			10
Total income tax expense on current year income		2,120			(267	)		1,853
Income tax expense (benefit) - discrete items:
Reserve for unrecognized tax benefits		(145	)		-			(145	)
Adjustment to prior year provision		(54	)		-			(54	)
Net excess tax benefit related to stock-based compensation		(12	)		-			(12	)
Income tax benefit - discrete items		(211	)		-			(211	)
Total income tax expense	$	1,909		$	(267	)	$	1,642

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of April 3, 2022 and March 28, 2021 are as follows (in thousands):

	April 3, 2022			March 28, 2021
Deferred tax assets:
Employee wage and benefit accruals	$	495		$	532
Accounts receivable and inventory reserves		414			234
Operating lease liabilities		654			1,100
Intangible assets		322			172
State net operating loss carryforwards		755			736
Accrued interest and penalty on unrecognized tax liabilities		43			28
Stock-based compensation		289			195
Total gross deferred tax assets		2,972			2,997
Less valuation allowance		(755	)		(736	)
Deferred tax assets after valuation allowance		2,217			2,261
Deferred tax liabilities:
Prepaid expenses		(607	)		(452	)
Operating lease right of use assets		(600	)		(1,015	)
Intangible assets		(1,725	)		-
Property, plant and equipment		(305	)		(88	)
Total deferred tax liabilities		(3,237	)		(1,555	)
Net deferred income tax (liabilities) assets	$	(1,020	)	$	706

In assessing the probability that the Company’s deferred tax assets will be realized, management of the Company has considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the future periods in which the temporary differences giving rise to the deferred tax assets will become deductible. The Company has also considered the scheduled inclusion into taxable income in future periods of the temporary differences giving rise to the Company’s deferred tax liabilities. The valuation allowance as of April 3, 2022 and March 28, 2021 was related to state net operating loss carryforwards that the Company does not expect to be realized. Based upon the Company’s expectations of the generation of sufficient taxable income during future periods, the Company believes that it is more likely than not that the Company will realize its deferred tax assets, net of the valuation allowance and the deferred tax liabilities.

The following table sets forth the reconciliation of the beginning and ending amounts of unrecognized tax liabilities for fiscal years 2022 and 2021 (in thousands):

	2022		2021
Balance at beginning of period	$	630	$	721
Additions related to current year positions		59		88
Additions related to prior year positions		50		56
Revaluations due to change in enacted tax rates		-		-
Reductions for tax positions of prior years		-		-
Reductions due to lapses of the statute of limitations		-		(341	)
Additions pursuant to judgements and settlements		-		106
Balance at end of period	$	739	$	630

In December 2016, the Company was notified by the FTB of its intention to examine the Company’s claims for refund made in connection with amended consolidated income tax returns that the Company had filed. On January 10, 2021, the Company’s California consolidated income tax returns for the fiscal year ended April 3, 2016 became closed to examination or other adjustment. Accordingly, the Company reversed the reserve for an unrecognized tax liability that it had previously recorded for that fiscal year, which resulted in the recognition of a discrete income tax benefit of $233,000 during the fiscal year ended March 28, 2021 in the accompanying consolidated statements of income. The Company also reversed the interest expense and penalties that it had accrued in respect of the unrecognized tax liabilities for these fiscal years, which resulted in the recognition of a credit to interest expense of $108,000 during the fiscal year ended March 28, 2021.

On March 3, 2021, the Company and the FTB entered into a Settlement Agreement regarding the Company’s claim for refund made in connection with the amended consolidated income tax return that the Company filed for the fiscal year ended March 30, 2014. Under the terms of the Settlement Agreement, the FTB made a payment to the Company in the amount of 30% of the amount of the claim for refund of $448,000, or $134,000, plus interest of approximately $7,000. Other than the recognition of the interest portion of the settlement as interest income, the resolution of this claim for refund had no effect on the Company’s consolidated statements of income for the fiscal year ended March 28, 2021.

During the fiscal years ended April 3, 2022 and March 28, 2021, the Company recorded discrete income tax benefits of $34,000 and $74,000, respectively, to reflect the aggregate effect of certain tax credits claimed on its consolidated federal income tax returns.

During the fiscal years ended April 3, 2022 and March 28, 2021, the Company recorded discrete income tax benefits of $83,000 and $12,000, respectively, to reflect the effects during the periods of the excess tax benefits from the exercise of stock options and the vesting of non-vested stock.

The Company’s provision for income taxes is based upon effective tax rates of 19.5% and 21.3% in fiscal years 2022 and 2021, respectively. These effective tax rates are the sum of the top U.S. statutory federal income tax rate and a composite rate for state income taxes, net of federal tax benefit, in the various states in which the Company operates, plus the net effect of various discrete items.

The following table reconciles income tax expense on income from continuing operations at the U.S. federal income tax statutory rate to the net income tax provision reported for fiscal years 2022 and 2021 (in thousands):

	2022			2021
Federal statutory rate		21	%		21	%
Tax expense at federal statutory rate	$	2,588		$	1,622
State income taxes, net of Federal income tax benefit		413			338
Tax credits		(136	)		(135	)
Discrete items		(65	)		(211	)
Tax effect of book income not includible for tax purposes		(486	)		-
Other - net, including foreign		94			28
Income tax expense	$	2,408		$	1,642