INCOME TAXES

12 Months Ended

Sep. 29, 2018

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

12. INCOME TAXES

On December 22, 2017 the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). Under Accounting Standards Codification (“ASC”) 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018; (2) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (3) accelerated expensing on certain qualified property; (4) creating a new limitation on deductible interest expense to 30% of tax adjusted EBITDA through 2021 and then 30% of tax adjusted EBIT thereafter; (5) eliminating the corporate alternative minimum tax; and (6) further limitations on the deductibility of executive compensation under IRC §162(m) for tax years beginning after December 31, 2017. As the reduction in the U.S. federal corporate tax rate is administratively effective on January 1, 2018, our blended U.S. federal tax rate for the year ended September 29, 2018 was approximately 24%.

In response to the TCJA, the U.S. Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of TCJA. The purpose of SAB 118 was to address any uncertainty or diversity of view in applying ASC Topic 740, Income Taxes in the reporting period in which the TCJA was enacted. SAB 118 addresses situations where the accounting is incomplete for certain income tax effects of the TJCA upon issuance of a company’s financial statements for the reporting period which include the enactment date. SAB 118 allows for a provisional amount to be recorded if it is a reasonable estimate of the impact of the TCJA. Additionally, SAB 118 allows for a measurement period to finalize the impacts of the TCJA, not to extend beyond one year from the date of enactment.

In connection with the TCJA, the Company recorded an income tax benefit of $1,382,000 related to the re-measurement of our deferred tax assets and liabilities for the reduced U.S. federal corporate tax rate of 21%. The Company’s accounting for the TCJA is complete as of September 29, 2018 with no significant differences from our provisional estimates recorded during interim periods.

The provision for income taxes consists of the following:

	Year Ended
	September 29, 2018			September 30, 2017
	(In thousands)
Current provision (benefit):
Federal	$	30		$	(144	)
State and local		320			287
		350			143
Deferred provision (benefit):
Federal		(798	)		1,391
State and local		(699	)		134
		(1,497	)		1,525
	$	(1,147	)	$	1,668

The effective tax rate differs from the U.S. income tax rate as follows:

	Year Ended
	September 29, 2018			September 30, 2017
	(In thousands)
Provision at Federal statutory rate (24% in 2018 and 34% in 2017)	$	953		$	2,185
State and local income taxes, net of tax benefits		-			255
Tax credits		(789	)		(632	)
Income attributable to non-controlling interest		(102	)		(244	)
Changes in tax rates		181			8
Impact of Federal tax reform		(1,382	)		-
Change in valuation allowance		(43	)		-
Other		35			96
	$	(1,147	)	$	1,668

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	September 29, 2018			September 30, 2017
	(In thousands)
Deferred tax assets:
State net operating loss carryforwards	$	4,141		$	3,210
Operating lease deferred credits		513			826
Deferred compensation		364			580
Tax credits		802			-
Other		98			99
Deferred tax assets, before valuation allowance		5,918			4,715
Valuation allowance		(311	)		(354	)
Deferred tax assets, net of valuation allowance		5,607			4,361
Deferred tax liabilities:
Depreciation and amortization		(2,080	)		(2,160	)
Partnership investments		(329	)		(291	)
Prepaid expenses		(210	)		(419	)
Deferred tax liabilities		(2,619	)		(2,870	)
Net defereed tax asssets (liabilities)	$	2,988		$	1,491

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. In the assessment of the valuation allowance, appropriate consideration was given to all positive and negative evidence including recent operating profitability, forecasts of future earnings and the duration of statutory carryforward periods. The Company recorded a valuation allowance of $311,000 and $354,000 as of September 29, 2018 and September 30, 2017, respectively; attributable to state and local net operating loss carryforwards which are not realizable on a more-likely-than-not basis. During fiscal 2018, the Company’s valuation allowance decreased by approximately $43,000 as the Company determined that certain state net operating losses became realizable on a more-likely-than-not basis.

As of September 29, 2018, the Company had General Business Credit carryforwards of approximately $802,000 which expires in fiscal 2038. In addition, the Company has New York State net operating losses of approximately $21,544,000 and New York City net operating loss carryforwards of approximately $19,963,000 that expire through fiscal 2038.

During fiscal 2017, certain equity compensation awards expired unexercised. As such, the Company reversed the related deferred tax asset in the amount of approximately $389,000 as a charge to Additional Paid-in Capital as there was a sufficient pool of windfall tax benefit available.

A reconciliation of the beginning and ending amount of unrecognized tax benefits excluding interest and penalties is as follows:

	September 29,			September 30,
	2018			2017
	(In thousands)
Balance at beginning of year	$	152		$	367
Additions based on tax positions taken in current and prior years		125			15
Settlements		(167	)		(134	)
Decreases based on tax postions taken in prior years		-			(96	)
Balance at end of year	$	110		$	152

The entire amount of unrecognized tax benefits if recognized would reduce our annual effective tax rate. As of September 29, 2018, the Company accrued approximately $66,000 of interest and penalties as a component of income tax expense. The Company expects that its unrecognized tax benefits will further decline over the next 12 months to the anticipated resolution of various tax examinations.

The Company files tax returns in the U.S. and various state and local jurisdictions with varying statutes of limitations. The 2015 through 2018 fiscal years remain subject to examination by the Internal Revenue Service and most state and local tax authorities.