INCOME TAXES

12 Months Ended

Dec. 31, 2016

NOTE 7 - INCOME TAXES

The income tax provision (benefit), in thousands, consists of the following for the years ended December 31, 2016 and 2015:


	2016		2015
Federal
Current	$	—	$	—
Deferred	—		—
	—		—
State and Local
Current	11		13
Deferred	69		—
	80		13
	$	80	$	13

A reconciliation of income taxes at the statutory rate to the reported provision (benefit), in thousands, is as follows:


	2016			2015
Federal income tax at statutory rate	$	(1,071	)	$	(595	)
State and local income taxes, net of federal income tax effect	(48		)	(77		)
Permanent differences	902			—
Increase in deferred tax asset valuation allowance	408			716
Other differences	(111		)	(31		)
	$	80		$	13

Significant components of the Company’s deferred tax liabilities and assets, in thousands, as of December 31, 2016 and 2015 are as follows:


	2016			2015
Deferred tax liabilities
Property and equipment	$	(935	)	$	(1,459	)
Gross deferred tax liabilities	(935		)	(1,459		)
Deferred tax assets
Intangibles and goodwill	2,038			2,286
Accrued property taxes	53			13
Allowance for doubtful accounts	14			14
Inventory capitalization	110			63
Stock options	605			1,147
Federal net operating loss carry forward	4,706			4,176
State net operating loss carry forward	1,658			1,758
State recycling equipment tax credit carry forward	4,593			4,598
Inventory valuation reserve	60			78
Accrued expenses	187			77
Other	11			11
Gross deferred tax assets	14,035			14,221
Valuation allowance	(13,073		)	(12,665		)
Net deferred tax assets	$	27		$	97

At December 31, 2016, the Company had deferred recycling equipment state tax credit carry forwards of $4.6 million relating to our shredder purchase which do not expire. This tax credit is limited to our Kentucky state income tax liability which includes the Limited Liability Entity Tax, which is based on gross receipts or gross profits. The Company used the available state tax credits of $3.0 thousand and $7.4 thousand in 2016 and 2015, respectively.

At December 31, 2016, the Company had a Federal net operating loss ("NOL") carry forward of $13.8 million which expires beginning in 2033. The Company also has state NOL carry forwards of $26.8 million as of December 31, 2016. The majority of the state NOL carry forwards relates to losses in Kentucky and expire beginning in 2031.

A deferred tax asset valuation allowance is established if it is “more likely than not” that the related tax benefits will not be realized. In determining the appropriate valuation allowance, the Company considers the projected realization of tax benefits based on expected levels of future taxable income, considering recent operating losses, available tax planning strategies, reversals of existing taxable temporary differences and taxable income in the state and carry back provisions. As of December 31, 2016, management determined that only the state recycling equipment tax credit carry forwards would be realized to the extent of $27 thousand and reserved all other net deferred tax assets by increasing the related valuation allowance. The state tax credit carry forwards have been reduced to their net realizable value based upon estimates of future gross profits and utilization of the credit in the foreseeable future.

The recorded valuation allowance, in thousands, consisted of the following at December 31, 2016 and 2015:


	Year Ended December 31,
	2016		2015
Valuation allowance, beginning of year	$	12,665	$	11,949
Increase in deferred tax asset valuation allowance	408		716
Valuation allowance, end of year	$	13,073	$	12,665