Income Taxes

The Company files a consolidated federal and various state income tax returns. The provision for income taxes is as follows:

	2020			2019
	(In thousands)
Current:
Federal	$	(1,912	)	$	(283	)
State		1,187			93
Total		(725	)		(190	)

Deferred:
Federal	$	14,251		$	1,220
State		1,278			(310	)
Total		15,529			910
Total income taxes (1)	$	14,804		$	720

(

) Income tax expense (benefit) included in the financial statements is comprised of

$14.4

million and $(

12.8

) million from continuing operations and

$0.4

million and

$13.5

million from discontinued operations in

2020

and

2019,

respectively.

A reconciliation for continuing operations of the expected U.S. statutory rate to the effective rate follows:

	2020			2019
Computed (expected tax rate)		21.0	%		21.0	%
State income taxes (net of federal tax benefit)		3.6			3.2
State tax credits		(0.8	)		0.7
Federal credits		(0.8	)		1.0
Addition to uncertain tax positions		0.3			1.0
Other permanent differences not deductible		0.2			(0.2	)
Change in valuation allowance		0.7			(0.2	)
Tax law change		(2.8	)		-
Other		0.6			(0.6	)
Effective income tax rate		22.0	%		25.9	%

The effective tax rate was

22.0%

2020

and

25.9%

2019.

The decrease of

3.9

percentage points in the effective tax rate for the year is primarily the result of

two

items. The changes in tax law from the CARES Act and the retroactive extension of the alternative fuel tax credit resulted in a

2.8

percentage point decrease. The creation of federal tax credits resulted in a

1.8

percentage point decrease. The amounts of federal credits are similar to the prior year but they have an opposite effect on the effective tax rate due to the company having income in

2020

and a loss in

2019.

December 20, 2019

116

was enacted. This PL retroactively extended the Alternative Fuel Credit from the previous expiration date of

December 31, 2017

December 31, 2020.

As a result, the Company qualified to take the alternative fuel tax credit from

January 1, 2018

March 31, 2019

2020.

This resulted in a benefit of

$0.13

million in

2020.

March 27, 2020

the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted. The act allows companies to carryback certain net operating losses (NOL) and it changed how the business interest expense limitation is calculated allowing companies to decrease their limit. As a result, the Company was able to carryback NOLs recorded on their financial statement at a

21%

tax rate to the

2015

tax year when the tax rate is

35%.

This resulted in a benefit of

$1.7

million in

2020.

The following is a summary of the significant components of the Company's deferred income tax assets and liabilities as of

March 31:

	2020		2019
	(In thousands)
Deferred income tax assets:
Future tax credits	$	5,581	$	5,124
Inventory valuation		163		-
Restructuring reserve		220		1,071
Employee benefits		2,219		2,030
Insurance		616		312
Other comprehensive loss		26,562		6,250
Interest		24		12
Future federal tax credits		-		654
Prepaid revenue		565		528
Other		186		298
Net operating loss and other tax attribute carryovers		2,233		5,628
Total assets		38,369		21,907
Deferred income tax liabilities:
Property basis and depreciation difference		12,664		13,049
Inventory valuation		-		534
Intangibles		208		286
Income from equity investment		1,239		-
Right of use assets		4,373		-
Pension		7,540		1,633
Total liabilities		26,024		15,502
Valuation allowance - non-current		4,473		3,988
Net deferred income tax asset	$	7,872	$	2,417

Net non-current deferred income tax assets of

$7.9

million as of

March

31,

2020

and net non-current deferred income tax assets of

$2.4

million as of

March

31,

2019

are recognized in the Consolidated Balance Sheets.

The Company has State tax credit carryforwards amounting to

$1.5

million (California, net of Federal impact),

$1.9

million (New York, net of Federal impact), and

$2.2

million (Wisconsin, net of Federal impact), which are available to reduce future taxes payable in each respective state through

2034

(Wisconsin), through

2034

(New York), and through

2028

(California). The Company has performed the required assessment regarding the realization of deferred tax assets and at

March

31,

2020,

the Company has recorded a valuation allowance amounting to

$4.5

million, which relates primarily to tax credit carryforwards which management has concluded it is more likely than

not

they will

not

be realized in the ordinary course of operations. Although realization is

not

assured, management has concluded that it is more likely than

not

that the deferred tax assets for which a valuation allowance was determined to be unnecessary will be realized in the ordinary course of operations. The amount of net deferred tax assets considered realizable, however, could be reduced if actual future income or income taxes rates are lower than estimated or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences.

Current rules on the accounting for uncertainty on income taxes prescribe a minimum recognition threshold for a tax position taken or expected to be taken in a tax return that is required to be met before being recognized in the financial statements. Those rules also provide guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company classifies the liability for uncertain tax positions in other accrued expenses or other long-term liabilities depending on their expected settlement. The change in the liability for the years ended

March

31,

2020

and

2019

consists of the following:

	2020			2019
	(In thousands)
Beginning balance	$	396		$	855

Tax positions related to current year:
Additions		1,123			26

Tax positions related to prior years:
Additions		569			-
Reductions		(16	)		(2	)
Lapses in statues of limitations		(7	)		(483	)
Balance as of March 31,	$	2,065		$	396

As of

March 31, 2020

and

2019

unrecognized tax benefits include

$1.6

million and

$0.0

million of tax positions that are highly certain but for which there is uncertainty about the timing. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of these positions would

not

impact the annual effective tax rate but would accelerate the payment of cash to the tax authority to an earlier period.

The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within income tax expense. During the years ended

March 31, 2020

and

2019,

the Company recognized approximately

$0.2

million increase and

$0.1

million decrease, respectively, in interest and penalties. As of

March 31, 2020

and

2019,

the Company had approximately

$0.2

million and

$0.0

million of interest and penalties accrued, respectively, associated with unrecognized tax benefits.

Although management believes that an adequate position has been made for uncertain tax positions, there is the possibility that the ultimate resolution could have an adverse effect on the earnings of the Company. Conversely, if resolved favorably in the future, the related provisions would be reduced, thus having a positive impact on earnings. During

2020

the statute of limitations lapsed on

one

uncertain tax position. The lapse resulted in the position

longer being uncertain. As a result of the statute of limitations lapse and in accordance with its accounting policies, the Company recorded a decrease to the liability and a decrease to tax expense of

$0.0

million.

The federal income tax returns for years after

March 31, 2016

are subject to examination. The tax year ended

March 31, 2017

is currently under audit with the IRS.