|9 Months Ended|
Sep. 30, 2016
|Income Tax Disclosure [Abstract]|
In June 2015, the Company made the decision to release the valuation allowance amounting to $7.7 million against its deferred tax assets net of deferred tax liabilities. Recent profitable quarters and projected future pretax income are sources of positive evidence that led the Company to conclude that it is more likely than not that it will realize its net deferred tax assets.
We estimate our annual effective income tax rate at the end of each quarterly period. This estimate takes into account the mix of expected income (loss) before income taxes by tax jurisdiction and enacted changes in tax laws. Our quarterly tax provision and quarterly estimate of the annual effective tax rate is subject to significant volatility due to several factors including, but not limited to, having to forecast income (loss) before income taxes by jurisdictions for the full year prior to the completion of the full year, changes in non-deductible expenses, jurisdictional mix of our income, non-recurring and impairment charges, as well as the actual amount of income (loss) before income taxes. For example, the impact of non-deductible expenses on our effective tax rate is greater when income (loss) before income taxes is lower. To the extent there are fluctuations in any of these variables during any given period, the provision for income taxes will vary accordingly.
The Company recognized an income tax benefit of $4,046,961 for the three months ended September 30, 2016, compared to income tax expense of $922,427 million for the three months ended September 30, 2015. The Company’s effective tax rate was 170.8% for the three months ended September 30, 2016 compared to (95.5)% for the three months ended September 30, 2015.
The Company recognized income tax benefit of $3,567,299 for the nine months ended September30, 2016, compared to income tax benefit of $5,619,504 for the nine months ended September 30, 2015. The Company’s effective tax rate was approximately 91.6% for the nine months ended September 30, 2016, compared to 3,934.8% for the nine months ended September 30, 2015.
These changes in the effective tax rates were due to several factors but are primarily dependent on the pre-tax income or loss and discrete items of the applicable periods and the FICA tip credit claimed for those periods.
As of September 30, 2016, we had approximately $13.8 million in net deferred tax assets ("DTAs"). These DTAs include approximately $6.5 million related to net operating loss ("NOL") carryforwards that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. Many of these NOL and FICA tip credit carryforwards will expire if they are not used within certain periods. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these DTAs. However, it is possible that some or all of these NOL and FICA tip credit carryforwards could ultimately expire unused, especially if we do not achieve our financial projections. Therefore, unless we achieve our financial projections and generate sufficient taxable income in the future, a substantial valuation allowance to reduce our U.S. DTAs may be required in subsequent periods, which would materially increase our expenses in the period the allowance is recognized and materially adversely affect our financial condition and results of operations.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef