Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.0.1
Income Taxes
12 Months Ended
Dec. 31, 2023
Income Taxes  
Income Taxes

Note 6 - Income Taxes

The components of income before provision for income taxes were as follows (in thousands):

For the years ended December 31, 

    

2023

    

2022

Domestic

$

2,077

$

14,051

Foreign

 

189

 

142

Total

$

2,266

$

14,193

The components of the Company’s provision for income taxes were as follows (in thousands):

For the years ended December 31, 

    

2023

    

2022

Current:

 

  

 

  

Federal

$

$

State and local

 

638

 

808

Foreign

 

35

 

75

Total current

 

673

 

883

Deferred:

 

  

 

  

Federal

 

(2,550)

 

(429)

State and local

 

117

 

420

Foreign

 

 

Total deferred

 

(2,433)

 

(9)

Total provision for income taxes

$

(1,760)

$

874

The Company’s effective tax rate differs from the statutory rates as follows:

For the years ended December 31, 

 

    

2023

    

2022

Income tax provision at federal statutory rate

 

21.0%

21.0%

State and local taxes

 

26.5%

7.6%

FICA tip credit

 

(151.2)%

(22.5)%

Compensation subject to IRC Section 162(m)

 

52.3%

8.6%

Equity based compensation

(33.1)%

(9.3)%

Non-controlling interest

6.4%

—%

Other items, net

 

0.4%

0.8%

Effective income tax rate

 

(77.7)%

6.2%

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

For the years ended December 31, 

    

2023

    

2022

Deferred tax assets:

 

  

 

  

Operating lease liabilities

$

23,798

$

18,871

Stock compensation

 

371

 

415

FICA tip credit carryforward

 

18,312

 

13,976

Net operating loss

 

5,543

 

3,203

Goodwill

 

753

 

906

Inventory

 

52

 

20

Charitable contributions carryforward

 

26

 

3

Foreign tax credit carryforward

 

622

 

622

Deferred revenue

 

126

 

190

State and local tax credit carryforward

 

78

 

135

Expenses not deductible until paid

 

83

 

298

IRC 163(j) disallowed interest carryforward

2,152

483

Debt issuance costs

82

113

Kona Grill related acquisition costs

693

755

Total deferred tax assets

 

52,691

 

39,990

Deferred tax liabilities:

 

  

 

  

Operating lease right-of-use assets

(17,360)

(13,974)

Depreciation and amortization

 

(19,888)

 

(13,064)

Other

 

(64)

 

(7)

Total deferred tax liabilities

 

(37,312)

 

(27,045)

Valuation allowance

 

(622)

(622)

Net deferred tax assets

$

14,757

$

12,323

Tax Carryforwards

As of December 31, 2023, the Company has federal net operating loss (“NOL”) carryforwards of $25.2 million which have no expiration date. The Company has various state NOL carryforwards. The determination of the state NOL carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. The state NOLs expire at various dates from 2036 to 2043. The state and local tax credit carryforwards expire at various dates from 2024 through 2029.

In assessing the realizability of deferred tax assets, the Company evaluates whether it is more likely than not that the deferred tax assets will be realized. In the assessment of the valuation allowance, appropriate consideration was given to all positive and negative evidence including current operating results, tax planning strategies and forecasts of future earnings. As of both December 31, 2023 and December 31, 2022, the Company had a valuation allowance of $0.6 million related to foreign tax credits the Company does not expect to utilize as a result of generating income in a jurisdiction with a higher income tax rate than the U.S.

Uncertain tax positions

The following table summarizes the activity related to the Company’s uncertain tax positions (in thousands):

For the years ended December 31, 

    

2023

    

2022

Balance, beginning of year

$

46

$

447

Increase related to current year positions

 

 

Decrease related to prior period positions

 

(46)

 

(401)

Balance, end of year

$

$

46

Included in the balance of unrecognized tax benefits as of December 31, 2023 and December 31, 2022, are zero and less than $0.1 million, respectively, of tax benefits that, if recognized, would result in adjustments to deferred taxes.

The Company is subject to income taxes in the U.S. federal jurisdiction, and the various states and local jurisdictions in which it operates. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company’s federal tax filings remain subject to examination for federal tax years 2020 through 2022. The Company’s state and local tax filings remain subject to examination for tax years 2019 through 2022. NOL carryforwards are subject to examination regardless of whether the tax year in which they are generated has been closed by statute. The amount subject to disallowance is limited to the NOL utilized. Accordingly, the Company may be subject to examination for prior NOLs generated as such NOLs are utilized.

The Company’s foreign income tax returns prior to fiscal year 2020 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.