7. Income Taxes

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Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

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For the thirty-nine weeks ended October 31, 2020 and November 2, 2019, the Company utilized the annual effective tax rate method to calculate income taxes.

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The effective income tax rate was 23.2% for the thirty-nine weeks ended October 31, 2020, compared to 15.6% for the thirty-nine weeks ended November 2, 2019. The difference in the effective income tax rate was due to lower federal and state tax credits this year.

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