15.	INCOME TAXES

The 2017 U.S. Tax Cuts and Jobs Act (the “TCJA”) was signed into law on December 22, 2017. The TCJA included a number of changes to the U.S. corporate income tax including a reduction of the corporate income tax rate form 35% to 21% for tax years beginning after December 31, 2017, enhancing and extending through 2026 the option to claim accelerated depreciation on qualified property, eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be utilized, a new limitation on deductible interest expense and limitations on the use of net operating loss carryforwards created in tax years beginning after December 31, 2017. For fiscal 2017 the Company used a blended effective tax rate of 33.7% which represents the prorated percentage from the TCJA’s January 1, 2018 effective date and our February 3, 2018 fiscal year-end. The Company recorded a $10.2 million reduction in our net deferred tax asset to reflect the remeasurement of the asset value from a tax rate of 35% to 21%. The Company had previously recorded a valuation allowance against its deferred tax assets, therefore the revaluation did not affect our fiscal 2017 tax expense.

The Company is reporting the impact of the TCJA provisionally based on reasonable estimates using currently available information and interpretations. We will continue to refine our reporting within the measurement period provided by Staff Accounting Bulletin No. 118.

Income tax provision (benefit) was comprised of the following (in thousands):

	Year Ended
	February 3, 2018			January 28,2017		January 30,2016
Current provision (benefit)	$	2		$	436	$	(4,826	)
Deferred provision (benefit)		—			24,614		2,020
Income tax provision (benefit)	$	2		$	25,050	$	(2,806	)

Federal provision (benefit)	$	(20	)	$	19,202	$	(1,962	)
State provision (benefit)		(70	)		5,679		(575	)
Foreign provision (benefit)		92			169		(269	)
Income tax provision (benefit)	$	2		$	25,050	$	(2,806	)

A reconciliation of the statutory federal tax rate to the Company’s effective income tax rates follows:

	Year Ended
	February 3, 2018			January 28, 2017			January 30, 2016
Statutory federal tax rate		(33.7	)%		(35.0	)%		(35.0	)%
State tax rate, net of federal effect		0.5			5.4			(2.3	)
(Benefit) provision for uncertain income tax positions, net of federal effect		(1.3	)		(1.8	)		(2.8	)
Change in federal tax rate		52.2			—			—
Other		(2.6	)		(3.7	)		1.6
Valuation allowance		(15.1	)		360.0			—
Effective income tax rate		0.0	%		324.9	%		(38.5	)%

The decrease in the effective tax rate in fiscal 2017 compared to fiscal 2016 was primarily the result of a valuation allowance recorded by the Company in fiscal 2016. Accounting Standards Codification Topic 740, Income Taxes, requires that a valuation allowance be recorded to reduce deferred tax assets when it is more likely than not that the tax benefit of the deferred tax assets will not be realized. In situations where a three-year cumulative loss condition exists, accounting standards limit the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets. In fiscal 2016 the Company’s financial results reflected a three-year cumulative loss. Consequently, in fiscal 2016 the Company recorded a non-cash charge of $27.8 million as a valuation allowance against substantially all of its deferred tax assets. In fiscal 2017 the Company’s financial results continue to reflect a cumulative three-year loss and as such we continue to record a valuation allowance against substantially all of our deferred tax assets. The establishment of this valuation allowance has no effect on the Company’s ability to utilize the deferred tax assets to offset future taxable income, if generated. The Company will continue to assess the likelihood that the deferred tax assets will be realizable in the future and the valuation allowance will be adjusted accordingly. The tax benefits relating to any reversal of the valuation allowance on the net deferred tax assets in a future period will be recognized as a reduction of future income tax expense in that period.

The deferred tax effects of temporary differences giving rise to the Company’s net deferred tax assets were as follows (in thousands):

	February 3, 2018			January 28, 2017
Deferred tax assets:
Net operating loss carryforwards	$	13,840		$	13,201
Deferred rent		5,568			9,454
Employee benefit accruals		1,873			3,041
Grow NJ award benefit, net		2,158			2,268
Depreciation and amortization		1,507			—
Inventory reserves		1,211			2,131
Federal tax credit carryforwards		1,494			1,247
Stock-based compensation		565			855
Other accruals		1,037			1,905
Other		1,367			1,960
		30,620			36,062
Valuation allowance		(27,425	)		(30,402	)
		3,195			5,660
Deferred tax liabilities:
Depreciation and amortization		—			(1,860	)
Prepaid expenses		(366	)		(549	)
		(366	)		(2,409	)

Net deferred tax assets	$	2,829		$	3,251

The Company assessed that it was unlikely that sufficient future state specific taxable income will be generated to fully use the available state net operating loss carryforwards, and accordingly, a valuation allowance has been recorded to recognize only the portion of the deferred tax asset that is considered more likely than not to be realized. The Company does not record state tax benefits associated with temporary differences for certain other states in which it has net operating losses, given the continued historical uncertainty related to realizing such state tax benefits. Had the state tax benefits been reflected for these states, the deferred tax assets (excluding state net operating loss carryforwards) as of February 3, 2018 would be approximately $1.4 million higher.

The accounting standard for uncertain income tax positions clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements and also contains guidance on the measurement of uncertain tax positions.

A reconciliation of gross unrecognized tax benefits for uncertain tax positions follows (in thousands):

	Year Ended
	February 3, 2018			January 28, 2017			January 30, 2016
Balance at beginning of period	$	752		$	961		$	1,537
Additions for current period tax positions		—			—			—
Additions for prior period tax positions		—			13			48
Reductions of prior period tax positions		(372	)		(222	)		(470	)
Payments		—			—			(154	)
Balance at end of period	$	380		$	752		$	961

As of February 3, 2018 gross unrecognized tax benefits included accrued interest and penalties of $192,000. During fiscal 2017, 2016 and 2015 interest and penalties of $(131,000), $(28,000) and $(83,000), respectively, related to unrecognized tax benefits, were included in income tax provision (benefit). If recognized, the portion of the liability for unrecognized tax benefits that would impact the Company’s effective tax rate was $326,000, net of federal tax benefit.

As of February 3, 2018, January 28, 2017 and January 30, 2016 the Company had income taxes receivable of $700,000, $4,875,000 and $5,859,000, respectively, which are included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

During the twelve months subsequent to February 3, 2018 it is reasonably possible that the gross unrecognized tax benefits could potentially decrease by approximately $238,000 (of which approximately $214,000 would affect the effective tax rate, net of federal expense) for uncertain tax positions, primarily from the effect of expiring statutes of limitations, partially offset by the continued effect of interest on unrecognized tax benefits.

The Company’s United States Federal income tax returns for the years ended September 30, 2014 and thereafter remain subject to examination by the United States Internal Revenue Service. The Company also files tax returns in Canada, India, Kuwait and numerous United States state jurisdictions, which have varying statutes of limitations. Generally, Canadian tax returns for tax years ended September 30, 2009 and thereafter, Indian tax returns for tax years ended March 31, 2011 and thereafter, and United States state tax returns for tax years ended September 30, 2013 and thereafter, depending upon the jurisdiction, remain subject to examination. However, the statutes of limitations on certain of the Company’s United States state tax returns remain open for tax years prior to fiscal 2013.