12. INCOME TAXES

The provision (benefit) for income taxes is comprised of:

The provision (benefit) for income taxes reconciles to the amounts computed by applying the statutory federal tax rate of 34% to the Company’s income before income taxes. The sources and tax effects of the differences for fiscal years 2016, 2015 and 2014 are as follows:

 

Differences between the Company’s effective income tax rate and what would be expected if the federal statutory rate was applied to income before income tax from continuing operations are primarily due to permanent tax adjustments such as energy efficient building deduction, current and deferred state income tax expenses, and stock options and disqualifying dispositions.

The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and liabilities are as follows:

 

At December 30, 2016, the Company had state operating loss carryovers of $2.0 million. The carryovers expire through 2035. 

During each fiscal year, management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize existing deferred tax assets. For fiscal years 2016 and 2015, the Company ultimately determined that it was more-likely-than-not that the entire California net operating loss will not be utilized prior to expiration.  Significant pieces of objective evidence evaluated included the Company’s history of utilization of California net operating losses in prior years for each of the Company’s subsidiaries, as well as the Company’s forecasted amount of net operating loss utilization for certain members of the combined group.  As a result, we recorded a valuation allowance in the amount of $72,000 and $73,000 at the end of fiscal year 2016 and 2015, respectively, related to California net operating losses. As of the end of fiscal year 2014, based on management’s evaluation of the Company’s ability to utilize the existing deferred tax assets, the Company reversed a $4.6 million valuation allowance previously accrued on its deferred tax assets.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes to simplify the presentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company has adopted ASU 2015-17 on January 1, 2016 and retrospectively applied ASU 2015-17 to all periods presented.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which amends the current stock compensation guidance. The amendments simplify the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. The standard is effective for fiscal periods beginning after December 15, 2016, with early adoption permitted. The Company has elected to early adopt ASU 2016-09 on a prospective basis, which resulted in a decrease to tax expense of approximately $194,000 for the fiscal year ended December 30, 2016.

Management believes that there are no material uncertain tax positions that would impact the accompanying consolidated financial statements. The Company's policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of December 30, 2016, January 1, 2016 and January 2, 2015, there were no unrecognized tax benefits. The Company may be subject to examination by the Internal Revenue Service for calendar years 2013 through 2016. The Company may also be subject to examination on certain state and local jurisdictions for the years 2012 through 2016.  The Company is currently under examination by the state of New York for the years 2012 through 2014.  The Company is unable to determine the outcome at this time.