Income Taxes

12 Months Ended

Mar. 28, 2021

Income Taxes

Income Taxes

Note 12. Income Taxes

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

	2021		2020		2019
Statutory federal rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	3.4		1.8		(1.3)
Non-deductible expenses	(1.2)		(0.7)		2.2
Change in uncertain tax positions	—		—		2.8
Change in valuation allowance	(7.6)		(2.9)		—
Rate change for loss carrybacks	6.2		12.5		—
Other	(0.7)		0.7		—
Effective rate	21.1	%	32.4	%	24.7	%

The provision for income taxes from continuing operations was comprised of the following:

	2021		2020		2019
Federal:    Current	$	(4,263,700)	$	(4,008,000)	$	(3,120,400)
Deferred		(48,200)		(2,642,800)		509,400
State:        Current		16,700		(411,000)		(321,500)
Deferred		450,700		(413,000)		18,700
Benefit from income taxes	$	(3,844,500)	$	(7,474,800)	$	(2,913,800)

Total net deferred tax assets (liabilities) as of March 28, 2021 and March 29, 2020, 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:

	2021		2020
Deferred tax assets:
Deferred compensation	$	163,600	$	264,300
Accrued vacation		362,600		469,100
Deferred rent		2,638,100		3,258,600
Allowance for doubtful accounts		357,300		1,130,900
Inventory reserves		766,300		2,794,200
Sales tax reserves		104,500		122,900
Sales return assets		451,400		1,200,400
Net operating loss		518,500		275,400
Business interest limitation carryforward		383,800		259,300
Other assets		925,900		1,013,600
		6,672,000		10,788,700
Valuation allowance		(2,866,800)		(2,047,300)
Total deferred tax assets		3,805,200		8,741,400
Deferred tax liabilities:
Depreciation and amortization		(214,600)		(419,200)
Sales return liabilities		(224,100)		(950,600)
Lease right of use		(2,589,600)		(3,232,900)
Prepaid expenses and other liabilities		(803,400)		(1,106,200)
Total deferred tax liabilities		(3,831,700)		(5,708,900)
Net deferred tax (liability) assets	$	(26,500)	$	3,032,500

The valuation allowance recorded by the Company as of March 28, 2021 and March 29, 2020 resulted from the uncertainties of the future realization of federal and state deferred tax assets. The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be realized, and will reduce the valuation allowance appropriately as such time when it is determined that the “more likely than not” criteria is satisfied.

As of March 28, 2021, the Company had state net operating loss carryforwards of $72,966,720 which will generally begin to expire in fiscal year 2030 through fiscal year 2040.  Certain state net operating loss carryovers do not expire.  

As of March 28, 2021 and March 29, 2020, the Company had no unrecognized tax benefits.

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 2021, 2020 and 2019 was a benefit of $0, $0, and $250,500 (net of federal benefit), respectively. The cumulative amount included in the consolidated balance sheet as of March 28, 2021 and March 29, 2020 was $0.

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

	2021		2020		2019
Beginning balance of unrecognized tax benefit	$	—	$	—	$	112,700
Increases related to current period tax positions		—		—		3,500
Reductions as a result of a lapse in the applicable statute of limitations		—		—		(116,200)
Ending balance of unrecognized tax benefits	$	—	$	—	$	—

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 No. 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 a material adjustment in fiscal year 2019 to the provided provisional amount of $0.2 million.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law making several changes to the Internal Revenue Code. The changes include but are not limited to: increasing the limitation on the amount of deductible business interest expense, allowing companies to carryback certain net operating losses to the preceding five years, and increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income.

The Company files income tax returns in U.S. federal, state and local jurisdictions. Tax returns for fiscal years 2015 through 2021 remain open to examination by U.S. federal, state and local tax authorities. All state net operating losses generated to date are subject to adjustment for state income tax purposes.