8. Income Taxes

On December 22, 2017 (the "Enactment Date"), H.R. 1, originally known as the Tax Cuts and Jobs Act, was enacted. The new law (Public Law No.115-97 hereinafter referred to as the "Tax Act") includes significant changes to the U.S. corporate income tax system including, but not limited to, lowering the statutory corporate tax rate from 35% to 21%, limiting or eliminating certain deductions and the repeal of Corporate AMT tax regime. The majority of the provisions will be applicable to the Company for fiscal 2019. For fiscal 2018, the Company computed its income tax expense using a blended federal tax rate of 32.6%. The 21% federal tax rate will apply to the fiscal year ending March 2, 2019 and each year thereafter.

The provision for income tax expense (benefit) from continuing operations was as follows:

	Year Ended
	March 3, 2018 (52 Weeks)			March 4, 2017 (53 Weeks)		February 27, 2016 (52 Weeks)
Current tax:
Federal	$	(210	)	$	—	$	(52	)
State		51,279			14,600		6,590

		51,069			14,600		6,538
Deferred tax and other:
Federal		316,451			10,355		83,074
State		(61,533	)		19,483		(40,100	)

		254,918			29,838		42,974

Total income tax expense	$	305,987		$	44,438	$	49,512

A reconciliation of the expected statutory federal tax and the total income tax expense (benefit) from continuing operations was as follows:

	Year Ended
	March 3, 2018 (52 Weeks)			March 4, 2017 (53 Weeks)			February 27, 2016 (52 Weeks)
Federal statutory rate*	$	(14,202	)	$	16,982		$	53,060
Federal tax rate change		324,765			—			—
Nondeductible expenses		1,213			2,479			6,518
State income taxes, net		(22,836	)		8,225			16,482
Increase/(decrease) of previously recorded liabilities		27,295			(955	)		—
Nondeductible compensation		654			1,157			6,057
Acquisition costs		696			4,023			6,782
Stock based compensation		8,363			—			—
Valuation allowance		(8,853	)		14,718			(38,058	)
Other		(11,108	)		(2,191	)		(1,329	)

Total income tax expense (benefit)	$	305,987		$	44,438		$	49,512


*	Federal statutory rate included in the above table is 32.6%, 35.0% and 35.0%, respectively, for the fiscal years ended March 3, 2018, March 4, 2017 and February 27, 2016.

Net income for fiscal 2018 from continuing operations included income tax expense of $305,987, of which $324,765 relates to the federal income tax rate change on the re-measurement of net deferred tax assets pursuant to the Tax Act. Additionally, the Company recorded within state income taxes the net impact of the Pennsylvania tax law change which resulted in a substantial increase to the state net operating loss carryforwards and a corresponding increase to the valuation allowance.

Net income from continuing operations for fiscal 2017 included income tax expense of $44,438, which included an increase in valuation allowance of $14,718 primarily related to a reduction in estimated utilization of state NOLs and for expiring carryforwards.

Net income from continuing operations for fiscal 2016 included income tax expense of $49,512 based on the effective tax rate above, which included a benefit of $38,058 related to a reduction in valuation allowance primarily for an increase in estimated utilization of state NOLs and for expiring carryforwards.

The Company recognized tax expense of $749,704, $46 and $63,427 within Net loss (income) from discontinued operations, net of tax, in the Statement of Operations in fiscal 2018, fiscal 2017 and fiscal 2016, respectively. The Company's effective income tax rate from discontinued operations included adjustments to the valuation allowance of $(32,870), $15 and $11,700 for fiscal 2018, fiscal 2017 and fiscal 2016, respectively.

The tax effect of temporary differences that gave rise to significant components of deferred tax assets and liabilities consisted of the following at March 3, 2018 and March 4, 2017:

	2018			2017
Deferred tax assets:
Accounts receivable	$	39,182		$	68,320
Accrued expenses		113,493			194,884
Liability for lease exit costs		40,662			68,411
Pension, retirement and other benefits		104,494			168,274
Long-lived assets		246,793			509,283
Other		—			1,630
Credits		85,555			65,971
Net operating losses		1,089,084			1,207,650

Total gross deferred tax assets		1,719,263			2,284,423
Valuation allowance		(896,800	)		(226,726	)

Total deferred tax assets		822,463			2,057,697
Deferred tax liabilities:
Outside basis difference		5,420			112,509
Inventory		223,024			439,624

Total gross deferred tax liabilities		228,444			552,133

Net deferred tax assets	$	594,019		$	1,505,564

A reconciliation of the beginning and ending amount of unrecognized tax benefits from continuing operations was as follows:

	2018			2017			2016
Unrecognized tax benefits	$	8,939		$	10,676		$	9,514
Increases to prior year tax positions		—			16			1,667
Decreases to tax positions in prior periods		(1,015	)		(626	)		(577	)
Increases to current year tax positions		224,408			26			72
Settlements		—			—			—
Divestitures		(1,607	)		—			—
Lapse of statute of limitations		(515	)		(1,153	)		—

Unrecognized tax benefits balance	$	230,210		$	8,939		$	10,676

The amount of the above unrecognized tax benefits at March 3, 2018, March 4, 2017 and February 27, 2016 which would impact the Company's effective tax rate, if recognized, was $31,377, $892 and $2,084 respectively. Additionally, any impact on the effective rate may be mitigated by the valuation allowance that is remaining against the Company's net deferred tax assets.

The Company believes that it is reasonably possible that a decrease of up to $13,498 in unrecognized tax benefits related to state exposures may be necessary in the next twelve months however management does not expect the change to have a significant impact on the results of operations or the financial position of the Company.

The Company recognizes interest and penalties related to tax contingencies as income tax expense. The Company recognized an expense/(benefit) for interest and penalties in connection with tax matters of $7,058, $(276) and $60 for fiscal years 2018, 2017 and 2016, respectively. As of March 3, 2018 and March 4, 2017 the total amount of accrued income tax-related interest and penalties was $7,322 and $263, respectively.

The Company files U.S. federal income tax returns as well as income tax returns in those states where it does business. The consolidated federal income tax returns are closed for examination through fiscal year 2014. However, any net operating losses that were generated in these prior closed years may be subject to examination by the IRS upon utilization. Tax examinations by various state taxing authorities could generally be conducted for a period of three to five years after filing of the respective return.

Net Operating Losses and Tax Credits

At March 3, 2018, the Company had federal net operating loss carryforwards of approximately $1,021,264 of these, $813,238 will expire, if not utilized, between fiscal 2029 and 2031. An additional $208,026 will expire, if not utilized, between fiscal 2032 and 2037.

At March 3, 2018, the Company had state net operating loss carryforwards of approximately $12,602,741, the majority of which will expire ratably through fiscal 2030; the net tax effect of these carryforwards are $1,106,710 and are reflected in the table above. The Pennsylvania tax law change removing the net operating loss utilization limitation resulted in a substantial increase to the state net operating loss carryforwards in fiscal 2018.

At March 3, 2018, the Company had federal business tax credit carryforwards of $45,676 the majority of which will expire between 2019 and 2021. In addition to these credits, the Company had alternative minimum tax credit carryforwards of $33,410 which will be refunded to the Company between fiscal 2019 - 2022.

Valuation Allowances

The valuation allowances as of March 3, 2018 and March 4, 2017 apply to the net deferred tax assets of the Company. The Company maintained a valuation allowance of $896,800 and $226,726, which relates primarily to state deferred tax assets at March 3, 2018 and March 4, 2017, respectively. The primary driver of the increase for fiscal 2018 resulted from the Pennsylvania tax law change which caused a substantial increase to the state net operating loss carryforwards, which required an offsetting increase in valuation allowance.