Note 13. Income Taxes

A reconciliation of the difference between the provision for income taxes computed at statutory rates and the provision for income taxes provided in the consolidated statements of income is as follows:


	2016		2015		2014

Statutory federal rate	34.0	%	34.2	%	35.0	%
State taxes, net of federal benefit	4.5		4.1		3.3
Non-deductible expenses	2.1		0.9		0.7
Other	(0.8)		—		(0.8)
Effective rate	39.8	%	39.2	%	38.2	%

The provision for income taxes was comprised of the following:


	2016		2015		2014

Federal: Current	$	2,350,000	$	3,035,400	$	9,252,700
Deferred		763,100		1,964,800		(396,600)
State: Current		345,100		398,500		1,212,400
Deferred		73,600		178,100		(5,400)
Provision for income taxes	$	3,531,800	$	5,576,800	$	10,063,100

Total net deferred tax assets as of March 27, 2016 and March 9, 2015, and the sources of the differences between financial accounting and tax basis of the Company's assets and liabilities which give rise to the deferred tax assets and liabilities, are as follows:


	2016		2015
Net deferred tax assets (liabilities):
Deferred compensation	$	357,500	$	802,700
Accrued vacation		534,200		554,100
Deferred rent		459,100		687,500
Allowance for doubtful accounts		266,300		232,800
Inventory reserves		2,264,500		2,175,500
Sales tax reserves		366,500		459,600
Other assets		475,200		516,000
Restricted Stock		—		89,600
Tax contingency reserve		247,600		286,200
Depreciation and amortization		(3,646,200)		(3,354,600)
Other liabilities		(374,100)		(312,400)
Accrued compensation		(577,600)		(873,700)
Prepaid expenses		(752,400)		(767,400)

Net Deferred Tax Asset (Liability)	$	(379,400)	$	495,900

The Company has reviewed its deferred tax assets realization and has determined that no valuation allowance is required as of March 27, 2016 or March 29, 2015.

As of March 27, 2016, the Company had gross unrecognized tax benefit of $290,400 ($188,800 net of federal benefit). As of March 30, 2015, the Company had gross unrecognized tax benefits of $394,400 ($256,400 net of federal benefit).

The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as income taxes. The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for fiscal year 2016 was an expense of $16,600 (net of federal benefit) and the cumulative amount included as a liability in the consolidated balance sheet as of March 27, 2016 was $399,814 (net of federal benefit). The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for fiscal year 2015 was a benefit of $31,600 (net of federal expense) and the cumulative amount included in the consolidated balance sheet as of March 29, 2015 was $323,800 (net of federal expense). The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for fiscal year 2014 was a benefit of $23,300 (net of federal benefit).

As of March 27, 2016, the total net amount of unrecognized tax benefits, inclusive of indirect tax benefits and deferred tax benefits was $188,800 and associated penalties and interest were $339,800. The net amount of $528,600, if recognized, would affect the effective tax rate.

A reconciliation of the changes in the gross balance of unrecognized tax benefit amounts, net of interest, is as follows:


	2016		2015		2014
Beginning balance of unrecognized tax benefit	$	394,400	$	1,665,000	$	631,100
Decrease due to reclassification to income tax payable		—		(1,189,000)		—
Increase related to prior period tax positions		—		—		1,189,000
Increases related to current period tax positions		3,800		10,600		22,800
Reductions as a result of a lapse in the applicable statute of limitations		(107,800)		(92,200)		(177,900)
Ending balance of unrecognized tax benefits	$	290,400	$	394,400	$	1,665,000

The Company files income tax returns in U.S. federal, state and local jurisdictions. Income tax returns filed for fiscal years 2008 and earlier are no longer subject to examination by U.S. federal, state and local tax authorities. No federal, state and local income tax returns are currently under examination.

Certain income tax returns for fiscal years 2012 through 2016 remain open to examination by U.S. federal, state and local tax authorities.