NOTE 10

Income Taxes

The Corporation had no federal and state income tax benefit or expense for the years ended May 31, 2016 and 2015.

The difference between the Corporation’s statutory federal income tax rate of 34 percent in fiscal 2016 and 2015, and the effective income tax rate is due primarily to state income taxes and changes in deferred tax assets valuation allowance and are as follows:


	Year ended May 31,
	2016			2015
	(Dollars in thousands)
Income taxes at statutory federal rate	$	637		$	(1,424	)
State income taxes		199			(45	)
State net operating loss		252			(110	)
New Energy Efficient Home Credit		(237	)		(134	)
(Decrease) increase in deferred tax assets valuation allowance		(1,031	)		1,570
Other, net		180			143

Income tax expense	$	—		$	—

Effective tax rate		0	%		0	%

Components of the net deferred tax assets include:


	May 31,
	2016			2015
	(Dollars in thousands)
Current deferred tax assets
Accrued marketing programs	$	181		$	144
Accrued warranty expense		1,901			1,800
Accrued workers’ compensation		1,011			886
Accrued vacation		346			325
Other		305			522

Gross current deferred tax assets		3,744			3,677

Noncurrent deferred tax assets
Liability for certain post-retirement benefits		1,850			2,017
Accrued warranty expense		987			958
Federal net operating loss carryforward		32,380			33,120
Federal tax credit carryforward		1,787			1,501
State net operating loss carryforward		7,717			8,133
Depreciation		714			668
Other		(171	)		(167	)

Gross noncurrent deferred tax assets		45,264			46,230

Total gross deferred tax assets		49,008			49,907
Valuation allowance		(49,008	)		(49,907	)

Net deferred tax assets	$	—		$	—

At May 31, 2016, the Corporation had gross federal net operating loss carryforwards of approximately $95 million and gross state net operating loss carryforwards of approximately $102 million. The federal net operating loss and tax credit carryforwards have a life expectancy of between twelve and twenty years. The state net operating loss carryforwards have a life expectancy, depending on the state where a loss was incurred, between one and twenty years. The Corporation has recorded a full valuation allowance against this asset. If the Corporation, after considering future negative and positive evidence regarding the realization of deferred tax assets, determines that a lesser valuation allowance is warranted, it would record a reduction to income tax expense and the valuation allowance in the period of determination. For fiscal 2016, the Corporation reported the utilization of previously fully-reserved federal net operating loss carryforwards of $695,000 and state operating loss carryforwards of $191,000 and released corresponding amounts of the valuation allowance to offset federal and state income tax expense.

Income tax returns are filed in the U.S. federal jurisdiction and in several state jurisdictions. For the majority of taxing jurisdictions the Corporation is no longer subject to examination by taxing authorities for years before 2012. The Corporation did not incur any interest or penalties related to income tax matters in fiscal years 2016 and 2015.

The Corporation has no unrecognized tax benefits in its financial statements during fiscal years 2016 and 2015, and does not expect any significant changes related to unrecognized tax benefits in the twelve months following May 31, 2016.