NOTE 5 - INCOME TAXES

The income tax provision (benefit), in thousands, consists of the following for the years ended December 31, 2018 and 2017:


	2018		2017
Federal
Current	$	—	$	—
Deferred	—		—
	—		—
State and Local
Current	13		12
Deferred	—		—
	13		12
	$	13	$	12

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


	2018			2017
Federal income tax at statutory rate	$	(71	)	$	(380	)
State and local income taxes, net of federal income tax effect	2			(52		)
Permanent differences	2			2
Tax reform legislation	920			1,736
Decrease in deferred tax asset valuation allowance	(779		)	(1,258		)
Other differences	(61		)	(36		)
	$	13		$	12

Significant components of the Company’s deferred tax liabilities and assets, in thousands, as of December 31, 2018 and 2017 are as follows:


	2018			2017
Deferred tax liabilities
Property and equipment	$	—		$	(300	)
Gross deferred tax liabilities	—			(300		)
Deferred tax assets
State recycling equipment tax credit carry forward	4,586			4,590
Federal net operating loss carry forward	2,980			3,901
State net operating loss carry forward	1,791			1,787
Intangibles and goodwill	1,014			1,178
Stock options	441			424
Accrued expenses	119			160
Interest expense limitation	47			—
Property and equipment	38			—
Inventory capitalization	23			72
Allowance for doubtful accounts	16			16
Accrued property taxes	6			6
Other	2			8
Gross deferred tax assets	11,063			12,142
Valuation allowance	(11,036		)	(11,815		)
Net deferred tax assets	$	27		$	27

At December 31, 2018, 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 $5.0 thousand and $6.0 thousand in 2018 and 2017, respectively.

At December 31, 2018, the Company had a Federal net operating loss ("NOL") carry forward of $14.6 million which expires beginning in 2034. The Company also has state NOL carry forwards of $29.3 million as of December 31, 2018. The majority of the state NOL carry forwards relates to losses in Kentucky and expire beginning in 2032.

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, 2018, 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.

On December 22, 2017, the President of the United States signed the Tax Cuts and Jobs Act tax reform legislation into law. This legislation makes significant changes in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the rate of 35 percent to 21 percent. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities. This revaluation resulted in an addition of $0.9 million and $1.7 million to income tax expense in continuing operations for the year ended December 31, 2018 and 2017, respectively, before change to the valuation allowance and a corresponding reduction in the deferred tax asset. The other provisions of the Tax Cuts and Jobs Act did not have a material impact on the Consolidated Financial Statements.

The recorded valuation allowance, in thousands, consisted of the following at December 31, 2018 and 2017:


	Year Ended December 31,
	2018			2017
Valuation allowance, beginning of year	$	11,815		$	13,073
Decrease in deferred tax asset valuation allowance	(779		)	(1,258		)
Valuation allowance, end of year	$	11,036		$	11,815