Income Taxes

12 Months Ended

Feb. 01, 2020

Temporary differences, which give rise to deferred tax assets and liabilities, are as follows:


	February 1, 2020		February 2, 2019
Deferred income tax assets:
Employee benefit expense	$	5,124	$	6,291
Deferred rents	8,889		9,786
Net operating loss carryforwards	1,898		2,380
Other	10,168		7,787
Total deferred income tax assets	26,079		26,244
Valuation allowance	(5,715)		(2,130)
Gross deferred income tax assets, net of valuation allowance	$	20,364	$	24,114
Deferred income tax liabilities:
Property and equipment	$	(17,830)	$	(22,399)
Inventories	(1,527)		(1,021)
Other	(1,007)		(694)
Total deferred income tax liabilities	(20,364)		(24,114)
Net deferred income tax assets (liabilities)	$	—	$	—

As of February 1, 2020, we do not believe that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets and therefore, we established a full valuation allowance in the amount of $5.7 million as of February 1, 2020 and $2.1 million as of February 2, 2019.

The valuation allowance will be maintained against the deferred tax assets until we believe it is more likely than not that these assets will be realized in the future. If sufficient positive evidence arises in the future indicating that all or a portion of the deferred tax assets meet the more-likely-than-not standard, the valuation allowance would be reversed in the period that such determination is made.

As of February 1, 2020, we have tax credit carryforwards for federal income tax purposes of $0.9 million. Additionally, as of February 1, 2020, we have gross net operating loss carryforwards for State income tax purposes of $29.8 million that will begin to expire in 2024.

Subsequent to February 1, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in March 2020 that allows the carry back of net operating losses to prior years. Accordingly, the Company filed amended income tax returns for a net income tax refund of $2.9 million with the IRS and utilized $0.9 million of the tax credit carryforwards in our amended income tax returns.

The components of income tax (benefit) expense are as follows:


	Year Ended 2019		Year Ended 2018
Current:
Federal	$	134	$	—
State	514		(25)
Total current	648		(25)




Income tax expense (benefit)	$	648	$	(25)

Income tax expense differs from the amount of income tax determined by applying the statutory U.S. corporate tax rate to pre-tax amounts due to the following items:


	Year Ended 2019		Year Ended 2018
Federal tax at the statutory rate	21.0	%	21.0	%
State income taxes, net of federal benefit	(1.9)	%	(0.9)	%
Permanent differences	(3.1)	%	(37.8)	%
Prior year true-up	10.3	%	—	%
Federal credits	3.6	%	13.9	%
Valuation allowance	(36.5)	%	4.2	%
Effective tax rate	(6.6)	%	0.4	%

The effective tax rate (“ETR”) represents the applicable combined federal and state statutory rates, reduced by the federal benefit of state taxes deductible on federal returns and adjusted for the effect of permanent differences.

As of February 1, 2020, there were no unrecognized tax benefits (“UTBs”) that, if recognized, would affect the ETR. We recognize interest and penalties related to UTBs in interest expense and penalties. During both 2019 and 2018, the amount of interest and penalties related to UTBs was less than $0.1 million, respectively. The total amount of accrued interest and accrued penalties related to UTBs as of February 1, 2020 and February 2, 2019 was less than $0.1 million, respectively.

We are currently open to audit under the statute of limitations by the Internal Revenue Service for the tax years 2016 through 2018. Our state tax returns are open to audit under statutes of limitations for the tax years 2014 through 2018.