8. INCOME TAXES

In determining the provision for income taxes, the Company uses an estimated annual effective tax rate that is based on the annual income, statutory tax rates and permanent differences between book and tax. This includes recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns to the extent pervasive evidence exists that they will be realized in future periods. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which are expected to be in effect in the years in which the temporary differences are expected to reverse. In accordance with the Company’s income tax policy, significant or unusual items are separately recognized when they occur.

The components of the gross liabilities related to unrecognized tax benefits and the related deferred tax assets are as follows:



	June 30,
(in thousands)	2019		2018
Gross unrecognized tax benefits	$	350	$	500
Accrued interest and penalties		110		100
Gross liabilities related to unrecognized tax benefits	$	460	$	600

Deferred tax assets	$	80	$	100

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:




(in thousands)		2019		2018		2017
Balance at July 1	$	500	$	320	$	610
Additions based on tax positions related to the current year		-		270		130
Additions for tax positions of prior years		-		-		-
Reductions for tax positions of prior years		(120)		(90)		(420)
Balance at June 30	$	380	$	500	$	320

The Company records interest and penalties related to income taxes as income tax expense in the consolidated statements of income. The Company does not expect that there will be any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months. Unrecognized tax benefits did not increase in the current year due to the loss situation.

The income tax provision is as follows for the years ended June 30:



(in thousands)	2019		2018		2017
Federal - current	$	(3,933)	$	6,731	$	11,015
State and other - current		71		443		1,179
Deferred		(6,141)		286		1,606
Total	$	(10,003)	$	7,460	$	13,800

Reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows for the years ended June 30:



	2019		2018		2017
Federal statutory tax rate	21.0	%	28.1	%	35.0	%
State taxes, net of federal effect	4.1		2.7		2.7
Other	(1.6)		(1.1)		(1.0)
Effective tax rate	23.5	%	29.7	%	36.7	%

The primary components of deferred tax assets and (liabilities) are as follows:


	June 30,
(in thousands)	2019		2018
Accounts receivable	$	260	$	290
Inventory		40		50
Self-insurance		200		240
Payroll and related		570		610
Accrued liabilities		2,960		1,750
Property, plant and equipment		(3,200)		(2,390)
Investment tax credit		2,340		2,550
Valuation allowance		(1,700)		(1,745)
Net operating loss carryover		5,940		-
Other		150		100
Total	$	7,560	$	1,455

At June 30, 2019, certain state tax credit carryforwards of $2.3 million were available, with $0.7 million expiring between 2020 and 2028 and $1.6 million with an indefinite carryforward period.

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. Generally, tax years 2015–2018 remain open to examination by the Internal Revenue Service or other taxing jurisdictions to which the Company is subject. As of June 30, 2019, there were no ongoing federal or state income tax audits.

At June 30, 2019, federal and state NOL carryforwards were $5.0 million and $0.9 million, respectively. The federal and some state net operating losses will have an indefinite carryforward. The remainder of the state net operating losses will expire in varying amounts between 2024 and 2039.

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform”), was enacted, which, among numerous provisions reduced the federal statutory corporate tax rate from 35% to 21%. Based on the provisions of the Tax Reform, the Company remeasured its deferred tax assets and liabilities and adjusted its estimated annual federal income tax rate to incorporate the lower corporate tax rate into the tax provision. For the fiscal year ended June 30, 2019, the Company utilized a rate of 21%.

The Company early adopted the FASB issued Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Reform on June 30, 2018. The Company reclassified $0.3 million from accumulated other comprehensive income to retained earnings related to the Company’s minimum pension liability.