NOTE

- INCOME TAXES

The income tax provision consists of the following for the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016:

	March 25 , 201 8			March 26, 2017		March 27, 2016
Federal
Current	$	1,077		$	3,024	$	3,176
Deferred		(474	)		79		(11	)
Total Federal income tax		603			3,103		3,165
State and local
Current		917			1,195		1,135
Deferred		(38	)		21		(12	)
Total State and local income tax		879			1,216		1,123
Total provision for income taxes	$	1,482		$	4,319	$	4,288

December 22, 2017,

the Enactment Date, President Trump signed the Tax Cuts and Jobs Act (“Act”) into law which among other provisions, permanently reduces the top corporate tax rate from

percent to a flat

percent beginning

January 1, 2018

and eliminates the corporate Alternative Minimum Tax. The new law limits the deduction of business interest, net of interest income, to

percent of the adjusted taxable income of the taxpayer in any taxable year. Any amount disallowed under the limitation is treated as business interest paid or accrued in the following year. Disallowed interest will have an indefinite carryforward. The new law also repeals the performance-based exception to the

$1.0

million deduction limitation on executive compensation and modifies the definition of “covered employees”. Additionally, the new law allows businesses to immediate expensing of the full cost of new equipment.

Nathan’s has determined reasonable estimates to its deferred assets and liabilities and pursuant to ASC

740,

Income Taxes, the Company has recognized the effect(s) of the Act on current and deferred income taxes in its consolidated financial statements for the fiscal year ended

March 25, 2018.

Nathan’s has completed its analysis and review of the Act and recorded the following discrete adjustment to its deferred tax liability and unrecognized tax benefits which reduced the provision for income taxes by

$245

during the fiscal year ended

March 25, 2018.

Nathan’s has determined that its blended federal tax rate will be

31%.

Fiscal year taxpayers are required to determine their final tax rate by prorating the federal tax rate prior to enactment and prorating the new rate for the balance of the fiscal year to determine the blended federal tax rate for the fiscal year.

The total income tax provision for the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016

differs from the amounts computed by applying the United States Federal income tax rate of

31%,

34%

and

34%,

respectively to income before income taxes as a result of the following:

	March 25 , 201 8			March 26, 2017			March 27, 2016

Computed “expected” tax expense	$	1,275		$	4,013		$	3,531
State and local income taxes, net of Federal income tax benefit		506			797			826
Change in uncertain tax positions, net		98			(11	)		(129	)
Nondeductible meals and entertainment and other		21			61			60
Nondeductible compensation		-			118			-
Tax reform act		(245	)		-			-
Tax benefit share based payments		(173	)		(659	)		-
Total provision for income taxes	$	1,482		$	4,319		$	4,288

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

	March 25 ,			March 26,
	201 8			2017
Deferred tax assets
Accrued expenses	$	310		$	361
Allowance for doubtful accounts		40			59
Deferred revenue		291			347
Deferred stock compensation		166			224
Excess of straight line over actual rent		194			338
Investment		123			187
Other		97			104
Total deferred tax assets	$	1,221		$	1,620

Deferred tax liabilities
Deductible prepaid expense		280			288
Depreciation expense		882			1,771
Amortization		361			374
Total deferred tax liabilities		1,523			2,433
Net deferred tax (liability)	$	(302	)	$	(813	)

A valuation allowance is provided when it is more likely than

not

that some portion, or all, of the deferred tax assets will

not

be realized. We consider the level of historical taxable income, scheduled reversal of temporary differences, tax planning strategies and projected future taxable income in determining whether a valuation allowance is warranted. Based upon these considerations, management believes that it is more likely than

not

that the Company will realize the benefit of its deferred tax asset.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, for the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016.

	March 25, 2018			March 26, 2017			March 27, 2016

Unrecognized tax benefits, beginning of year	$	167		$	208		$	266
Decreases of tax positions taken in prior years		(2	)		(31	)		(98	)
Increases based on tax positions taken in current year		98			41			43
Settlements of tax positions taken in prior years		-			(51	)		(3	)
Unrecognized tax benefits, end of year	$	263		$	167		$	208

The amount of unrecognized tax benefits at

March 25, 2018,

March 26, 2017

and

March 27, 2016

were

$263

$167

and

$208,

respectively, all of which would impact Nathan’s effective tax rate, if recognized. As of

March 25, 2018

and

March 26, 2017,

the Company had

$214

and

$183,

respectively, accrued for the payment of interest and penalties. For the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016

Nathan’s recognized interest and penalties in the amounts of

$31,

$29

and

$34,

respectively. During the fiscal year ending

March 31, 2019,

Nathan’s will seek to settle additional uncertain tax positions with the tax authorities. As a result, it is reasonably possible the amount of unrecognized tax benefits, excluding the related accrued interest and penalties, could be reduced by up to

$3,

which would favorably impact Nathan’s effective tax rate, although

assurances can be given in this regard.

January 2018,

Nathan’s received notification from the State of Virginia that it was seeking to review Nathan’s tax returns for the period

April 2014

through

March 2017.

The review is ongoing.

Nathan’s estimates that its annual tax rate for the fiscal year ending

March 31, 2019

will be in the range of approximately

27.0%

30.0%

excluding the impact of the discrete items recorded and excess tax benefit associated with stock compensation. The final annual tax rate is subject to many variables, including the ultimate determination of revenue and income tax by state, among other factors, and therefore cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from our current estimates. In addition, the ultimate benefit of the Act on Nathan’s is unclear as the lower annual tax rate could be outweighed by the limitation of the deduction of interest expense and other provisions.

The earliest tax years’ that are subject to examination by taxing authorities by major jurisdictions are as follows:

Jurisdiction		Fiscal Year
Federal		2015
New York State		2015
New York City		2015
New Jersey		2014
Pennsylvania		2015
Virginia		2015