Income Taxes

6 Months Ended

Sep. 02, 2023

Income Taxes

Income Taxes

6. Income Taxes

The Company recorded income tax expense of $2,338 and $11,967 for the thirteen week periods ended September 2, 2023 and August 27, 2022, respectively. The Company recorded income tax expense of $3,831 and $15,464 for the twenty-six week periods ended September 2, 2023 and August 27, 2022, respectively. The effective tax rate for the thirteen week periods ended September 2, 2023 and August 27, 2022 was (0.2)% and (3.7)%, respectively. The effective tax rate for the twenty-six week periods ended September 2, 2023 and August 27, 2022 was (0.3)% and (3.8)%, respectively. The effective tax rate for the thirteen and twenty-six week periods ended September 2, 2023 was net of an adjustment of (25.3)% and (25.8)%, respectively, to adjust the valuation allowance against deferred tax assets. The effective tax rate for the thirteen and twenty-six week periods ended August 27, 2022 was net of an adjustment of 87.8% and 62.5%, respectively, to adjust the valuation allowance against deferred tax assets, primarily resulting from a Pennsylvania law change that reduced the corporate net income tax rate causing a reduction to the valuation allowance of $380,509.

The Company recognizes tax liabilities in accordance with the guidance for uncertain tax positions and management adjusts these liabilities with changes in judgment as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities.

The Company believes that it is reasonably possible that a decrease of up to $4,001 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 material impact on the results of operations or the financial position of the Company.

The Company continues to maintain a valuation allowance against net deferred tax assets of $1,975,091 and $1,636,461, which relates to federal and state deferred tax assets that may not be realized based on the Company's future projections of taxable income at September 2, 2023 and March 4, 2023, respectively. As further discussed in Note 1, Basis of Presentation and Significant Accounting Policies, the Company concluded that there is substantial doubt about its ability to continue as a going concern. The Company considered this, as well as the impact of the Chapter 11 proceedings as part of its current evaluation of valuation allowance established for deferred tax assets for which future realization is uncertain. Additional discussion regarding the Restructuring on deferred tax assets can be found in Note 16, Subsequent Events.