Note 13 - Income Taxes

12 Months Ended

Oct. 01, 2016

. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax liabilities and assets as of

October

2016

and

October

2015

are as follows:

	2016			2015
Deferred tax liabilities:
Depreciation	$	(280,000	)	$	(383,000	)
Amortization		(88,000	)		(99,000	)
Total deferred tax liabilities		(368,000	)		(482,000	)

Deferred tax assets:
Deferred compensation		101,000			131,000
Accrued expenses		364,000			302,000
Inventory		74,000			62,000
Other		21,000			(10,000	)
Total deferred tax assets		560,000			485,000
Net deferred tax assets	$	192,000		$	3,000

We made cash income tax payments, net of refunds, of approximately

$2,267,000,

$524,000

and

$1,904,000

in fiscal years

2016,

2015

and

2014,

respectively.

Federal, state and foreign income tax provisions consist of the following:

	2016			2015		2014
Current:
Federal	$	1,706,000		$	1,166,000	$	1,125,000
State		99,000			34,000		20,000
Foreign		210,000			349,000		(150,000	)
		2,015,000			1,549,000		995,000
Deferred:
Federal		(132,000	)		102,000		(11,000	)
State		(6,000	)		8,000		1,000
Foreign		(50,000	)		13,000		53,000
		(188,000	)		123,000		43,000
Income tax expense	$	1,827,000		$	1,672,000	$	1,038,000

Income tax expense differs from the amounts computed by applying the statutory U.S. federal tax rate to income before income taxes as follows:

	2016			2015			2014
Computed tax at the U.S. statutory rate	$	2,065,000		$	1,926,000		$	1,234,000
Increases (decreases):
State income taxes, net of federal tax benefit		61,000			27,000			13,000
Differences between U.S. and foreign tax rates		(98,000	)		(191,000	)		(27,000	)
Officer's life insurance		(50,000	)		(15,000	)		(57,000	)
Domestic production deduction		(168,000	)		(115,000	)		(116,000	)
Other, net		17,000			40,000			(9,000	)
Income tax expense	$	1,827,000		$	1,672,000		$	1,038,000

We have adopted the provisions under ASC Topic

740,

“Income Taxes” (“ASC

740”)

which require that a position taken or expected to be taken in a tax return be recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than

fifty

percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than

fifty

percent likely of being realized upon settlement. We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense in our consolidated financial statements. We are

not

aware of any uncertain tax positions as of

October

2016

and

October

2015.

In the normal course of business, we are subject to examination by taxing authorities. We do not expect to be subject to U.S. federal, state or local income tax examinations by tax authorities in filing jurisdictions for the years before tax year

2012

and Canadian tax examinations before the tax year

2012.

Span - America files income tax returns in the U.S. and various state and local jurisdictions. Span - Canada files separate income tax returns in Canada on an annual basis. The resulting foreign income taxes and any applicable U.S. or foreign tax implications of intercompany transactions will be accounted for within the consolidated financial reporting of income taxes, per the requirements of ASC Topic

740.

A provision has not been made for U.S. or additional foreign taxes on

$2,718,000

of undistributed earnings of our foreign subsidiary. Those earnings have been and will continue to be reinvested. These earnings could become subject to additional tax if they were remitted as dividends, if foreign earnings were loaned to Span - America or a U.S. affiliate, or if we sold our stock in the Span - Canada subsidiary. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings.