Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(9) Income Taxes

The Company’s income tax provision for the years ended

December

31,

2016,

2015

and

2014

consists of the following (in thousands):

	Years Ended December 31,
	2016		2015			2014
Current
Federal	$	3,120	$	3,131		$	2,638
State		651		580			336
		3,771		3,711			2,974
Deferred
Federal		546		508			1,262
State		30		(71	)		(30	)
		576		437			1,232
Total income tax provision	$	4,347	$	4,148		$	4,206

At

December

31,

2016,

the Company had net operating loss carryforwards for federal income tax purposes of approximately

$119,000,

which are available to offset future taxable income and expire during the federal tax year ending

December

31,

2019.

The approximate tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2016			2015
Deferred tax assets:
Reserves	$	531		$	532
Inventory capitalization		427			407
Compensation programs		578			501
Retirement liability		19			27
Equity-based compensation		257			290
Net operating loss carryforwards		40			141
Deferred rent		7			10
Intangible assets		340			264
Total deferred tax assets		2,199			2,172
Deferred tax liabilities:
Excess of book over tax basis of fixed assets		(4,767	)		(4,186	)
Goodwill		(891	)		(869	)
Total deferred tax liabilities		(5,658	)		(5,055	)
Net long-term deferred tax liabilities	$	(3,459	)	$	(2,883	)

The amounts recorded as deferred tax assets as of

December

31,

2016,

and

2015,

represent the amount of tax benefits of existing deductible temporary differences or carryforwards that are more likely than not to be realized through the generation of sufficient future taxable income within the carryforward period. The Company has total deferred tax assets of

$2.2

million at

December

31,

2016,

that it believes are more likely than not to be realized in the carryforward period. Management reviews the recoverability of deferred tax assets during each reporting period.

The actual tax provision for the years presented differs from the “expected” tax provision for those years, computed by applying the U.S. federal corporate rate of

34.0%

to income before income tax expense as follows:

	Years Ended December 31,
	2016			2015			2014
Computed “expected” tax rate		34.0	%		34.0	%		34.0	%
Increase (decrease) in income taxes resulting from:
State taxes, net of federal tax benefit		3.7			2.3			1.1
Meals and entertainment		0.2			0.3			0.3
R&D credits		(0.6	)		(0.8	)		(0.7	)
Domestic production deduction		(2.5	)		(2.5	)		(1.4	)
Non-deductible ISO stock option expense		0.3			0.4			0.4
Unrecognized tax benefits		(0.1	)		-			1.3
Other		0.3			1.6			0.8
Effective tax rate		35.3	%		35.3	%		35.8	%

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company has not been audited by any state for income taxes with the exception of returns filed in Michigan which have been audited through

2004,

income tax returns filed in Massachusetts which have been audited through

2007,

income tax returns filed in Florida which have been audited through

2009

and income tax returns in Colorado which have been audited through

2013.

An audit for income tax returns filed in New Jersey for the years

2009

through

2012

is currently in progress. An audit for the Company’s federal tax return for

2014

is currently in progress. Federal and state tax returns for the years

2013

through

2016

remain open to examination by the IRS and various state jurisdictions.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) resulting from uncertain tax positions is as follows (in thousands):

	December 31,
	2016			2015
Gross UTB balance at beginning of fiscal year	$	162		$	230
Reductions for tax positions of prior years		(12	)		(68	)
Gross UTB balance at end of fiscal year	$	150		$	162

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of

December

31,

2016

and

2015,

is

$150,000

and

$162,000,

respectively.

In addition, the total amount of accrued interest and penalties on uncertain tax positions at

December

31,

2016

and

2015

is

$153,000

and

$153,000,

respectively.

At

December

31,

2016,

all of the unrecognized tax benefits relate to tax returns of a specific state jurisdiction that are currently under examination. Accordingly, the Company expects a reduction of this amount in

2017,

as the examination is expected to close within the next

12

-months.