Note 11. 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:


	2019		2018		2017

Statutory federal rate	21.0	%	31.3	%	34.0	%
State taxes, net of federal benefit	3.5		4.0		4.6
Non-deductible expenses	2.1		4.4		5.4
Change in uncertain tax positions	(4.6)		—		—
Change in valuation allowance	1.9		—		—
Change in deferred tax related to key man life insurance	—		(7.3)		—
Other	—		(1.9)		(2.1)
Effective rate	23.9	%	30.5	%	41.9	%

The provision for income taxes was comprised of the following:


	2019		2018		2017

Federal: Current	$	1,037,600	$	3,073,400	$	1,083,600
Deferred		576,200		(1,081,600)		(69,100)
State: Current		52,600		433,400		53,100
Deferred		79,000		(148,000)		(26,400)
Provision for income taxes	$	1,745,400	$	2,277,200	$	1,041,200

Total net deferred tax assets (liabilities) as of March 31, 2019 and April 1, 2018, 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, are as follows:


	2019		2018
Deferred tax assets :
Deferred compensation	$	267,300	$	160,600
Accrued vacation		312,300		340,200
Deferred rent		34,500		37,200
Allowance for doubtful accounts		488,000		249,700
Inventory reserves		1,406,100		1,414,600
Sales tax reserves		192,900		217,500
Sales return assets		478,600		—
Other liabilities		205,700		—
Net operating loss		141,600		—
Tax contingency reserve		—		83,400
Other assets		652,800		1,364,900
		4,179,800		3,868,100
Valuation allowance		(141,600)		—
Total deferred tax assets		4,038,200		3,868,100

Deferred tax liabilities :
Depreciation and amortization		(3,094,000)		(2,542,800)
Sales return liabilities		(365,200)		—
Prepaid expenses		(523,700)		(614,800)
Total deferred tax liabilities		(3,982,900)		(3,157,600)
Net Deferred Tax Assets	$	55,300	$	710,500

The Company has reviewed its deferred tax assets realization and has determined that a valuation allowance on certain separate company state net operating losses are required as of March 31, 2019. No valuation allowance was required as of April 1, 2018.

The Company has net operating loss carryforwards of 141,600 which will generally begin to expire in fiscal year 2030 through fiscal year 2048. Certain net operating loss carryovers do not expire.

As of March 31, 2019, the Company had no unrecognized tax benefits. As of April 1, 2018, the Company had a gross amount of unrecognized tax benefits of $112,700 ($87,200 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 part of the provision for income taxes. The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for fiscal year 2019 was a benefit of $250,500 (net of federal benefit). The cumulative amount included in the consolidated balance sheet as of March 31, 2019 was $0. The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for fiscal year 2018 was a benefit of $38,100 (net of federal expense) and the cumulative amount included as a liability in the consolidated balance sheet as of April 1, 2018 was $250,500 (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 2017 was a benefit of $10,000 (net of federal expense).

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


	2019		2018		2017
Beginning balance of unrecognized tax benefit	$	112,700	$	204,500	$	290,400
Increases related to current period tax positions		3,500		—		3,100
Reductions as a result of a lapse in the applicable statute of limitations		(116,200)		(91,800)		(89,000)
Ending balance of unrecognized tax benefits	$	—	$	112,700	$	204,500

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, which we refer to herein as the 2017 Tax Act. While the changes from the Tax Act were generally effective for tax years beginning after December 31, 2017, ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment. Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allowed registrants to record provisional amounts in earnings for the year ended April 1, 2018. The Company was required to complete its tax accounting for the 2017 Tax Act when it had obtained, prepared and analyzed the information to complete the income tax accounting but no later than December 22, 2018. Accordingly, during fiscal year 2019, the Company completed its accounting for the tax effects of the enactment of the 2017 Tax Act based on the Company’s interpretation on the new tax regulations and related guidance issued by the U.S. Department of the Treasury and the IRS. The Company did not record material adjustment to the previously provided provisional amount of $0.2 million.

The Company files income tax returns in U.S. federal, state and local jurisdictions. Certain income tax returns for fiscal years 2015 through 2018 remain open to examination by U.S. federal, state and local tax authorities. Currently, our New York income tax return for tax year 2016 are under examination.