Note H - Income Taxes

12 Months Ended

Mar. 27, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE H – INCOME TAXES

The income tax provision consists of the following for the fiscal years ended March 27, 2022 and March 28, 2021:                  

	March 27, 2022			March 28, 2021
Federal
Current	$	4,019		$	3,146
Deferred		(380	)		(92	)
Total Federal income tax		3,639			3,054
State and local
Current		1,365			1,251
Deferred		(64	)		(55	)
Total State and local income tax		1,301			1,196
Total provision for income taxes	$	4,940		$	4,250

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“the CARES Act”) was enacted into law which among other provisions increases the limitation on the allowed business interest expense deduction from 30 percent to 50 percent of adjusted taxable income for tax years beginning January 1, 2019 and 2020. Additionally, the CARES Act allows businesses to immediately expense the full cost of Qualified Improvement Property, retroactive to tax years beginning on or after January 1, 2018.

The income tax provisions for the fiscal years ended March 27, 2022 and March 28, 2021 reflect effective tax rates of 26.7% and 27.7%, respectively. The decrease in the effective rate is primarily related to a foreign derived intangible income deduction and a change in the allocation of income between jurisdictions in which we are subject to state income taxes.

The total income tax provision for the fiscal years ended March 27, 2022 and March 28, 2021 differs from the amounts computed by applying the United States Federal income tax rate of 21% to income before income taxes as a result of the following:

	March 27, 2022			March 28, 2021
Computed tax expense	$	3,893		$	3,218
State and local income taxes, net of Federal income tax benefit		1,003			936
Change in uncertain tax positions, net		33			68
Nondeductible meals and entertainment and other		(77	)		(35	)
Nondeductible compensation		88			63
Total provision for income taxes	$	4,940		$	4,250

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 27,		March 28,
	2022		2021
Deferred tax assets
Accrued expenses	$	324	$	339
Allowance for doubtful accounts		61		87
Interest expense		381		-
Deferred revenue		519		445
Deferred stock compensation		69		58
Operating lease liability		1,894		2,190
Other		123		120
Total deferred tax assets	$	3,371	$	3,239
Deferred tax liabilities
Deductible prepaid expense	$	240	$	223
Operating lease right-of-use asset		1,692		1,954
Depreciation expense		637		634
Amortization		220		290
Total deferred tax liabilities		2,789		3,101
Net deferred tax asset	$	582	$	138

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 27, 2022 and March 28, 2021.

	March 27, 2022			March 28, 2021
Unrecognized tax benefits, beginning of year	$	397		$	311
Decreases of tax positions taken in prior years		(19	)		(16	)
Increases based on tax positions taken in current year		38			102
Settlements of tax positions taken in prior years		(13	)		-
Unrecognized tax benefits, end of year	$	403		$	397

The amount of unrecognized tax benefits at March 27, 2022 and March 28, 2021 were $403 and $397, respectively, all of which would impact Nathan’s effective tax rate, if recognized. As of March 27, 2022 and March 28, 2021, the Company had $271 and $256, respectively, accrued for the payment of interest and penalties. For the fiscal years ended March 27, 2022 and March 28, 2021 Nathan’s recognized interest and penalties in the amounts of $15 and $(3), respectively.

During the fiscal year ending March 26, 2023, 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 $16, which would favorably impact Nathan’s effective tax rate, although no assurances can be given in this regard.

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

Jurisdiction	Fiscal Year
Federal	2019
New York State	2019
New York City	2019
New Jersey	2018
California	2018