Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.3
Income Taxes
 12 Months Ended
Jan. 29, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Certain balances herein reflect the restatements described in Note 2. Restatement and Other Corrections of Previously Issued Financial Statements.
The Company is subject to federal, state and local corporate income taxes. The components of the provision for income taxes reflected on the statements of operations are set forth below:
2023 2022 2021
(As Restated)
(As Revised)
Current taxes:
U.S. federal $ 6,127  $ 412  $ — 
State and local 3,190  2,220  86 
Total current tax expense $ 9,317  $ 2,632  $ 86 
Deferred taxes:
U.S. federal $ 1,767  $ (7,222) $ — 
State and local (723) (2,499) — 
Total deferred tax expense (benefit) 1,044  (9,721) — 
Total tax provision $ 10,361  $ (7,089) $ 86 
A reconciliation of income taxes at the federal statutory corporate rate to the effective rate is as follows:
2023 2022 2021
(As Restated)
(As Revised)
Provision (benefit) at federal Statutory rates 21.0  % 21.0  % 21.0  %
State tax, net of federal provision (benefit) 4.9  % 4.9  % 3.3  %
Non-deductible executive compensation 1.8  % 1.8  % —  %
Permanent adjustments 0.2  % —  % 0.1  %
Equity-based compensation 0.1  % (4.4) % (2.8) %
Federal true-ups 0.1  % (0.4) % 0.4  %
Change in valuation allowance —  % (40.4) % (21.4) %
Income tax provision 28.1  % (17.5) % 0.6  %
Significant components of the Company's deferred tax assets are as follows (in thousands):
2023 2022
(As Restated)
(As Revised)
Deferred Income Tax Assets
Federal net operating loss carryforward $ —  $ 2,399 
State net operating loss carryforward 440  1,399 
Intangible assets 403  397 
Accrued liabilities 2,952  3,242 
Equity-based compensation 3,247  2,032 
Merchandise inventories 724  689 
Charitable Contributions —  12 
 R&D Capitalization 1,920  — 
Operating Lease Liabilities 39,488  28,702 
Total Deferred Income Tax Assets 49,174  38,872 
Deferred Income Tax Liabilities
Operating Lease Right of Use Asset (35,484) (26,726)
Property and equipment (5,013) (2,425)
Total Deferred Tax Liabilities (40,497) (29,151)
Net Deferred Income Tax Asset $ 8,677  $ 9,721 
At January 29, 2023, the Company did not have any net operating loss carryforwards available for federal income tax purposes. At January 30, 2022, the Company had net operating loss carryforwards available for federal income tax purposes of approximately $11.4 million. In addition, the Company has approximately $7.1 million and $22.2 million of state net operating loss carryforwards as of January 29, 2023 and January 30, 2022, respectively. The state net operating losses expire at various times between 2031 and 2040. The statute of limitations has expired for all tax years prior to 2019 for federal and state tax purposes. However, the net operating losses generated on the Company's federal and state tax returns in prior years may be subject to adjustments by the federal and state tax authorities.
Prior to the fiscal 2022 year-end, the Company recorded a full valuation allowance on its net deferred tax assets, as it did not meet the more likely than not threshold required under ASC 740-10-30. For the year ended January 30, 2022, the Company reversed its full valuation allowance of $16.4 million, as it assessed and concluded that it met the more likely than not threshold of realizing its net deferred tax assets. The main forms of positive evidence to support the valuation allowance release were the substantial realization of its net operating loss carryforwards and cumulative three years of income. As of January 29, 2023, the Company did not record a valuation allowance against its net deferred tax assets, due to its assessment and conclusion that it is more likely than not that it would realize its net deferred tax assets.
As of January 29, 2023 and January 30, 2022, the Company assessed and concluded that it does not have any unrecognized tax benefits. The Company does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months; however, the ultimate outcome of tax matters is uncertain and unforeseen results can occur. We had no interest or penalties during fiscal years 2023, 2022, and 2021, and we do not anticipate any such items during the next twelve months. Our policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the statements of operations. The IRS is auditing the Company's fiscal 2019 federal income tax return. The Company has been responding to information requests and at this time, the Internal Revenue Service (IRS) has not proposed any adjustments.

On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. The Company assessed and concluded that the Inflation Reduction Act did not have an impact to the financials as of January 29, 2023, and will continue to monitor the impact of the changes.

For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. These changes in tax laws did not have a material impact on the Company’s results of operations for the year ended January 30, 2022. For the year ended January 29, 2023 due to the capitalization of research and development expenditures, the Company’s current federal taxable income increased by approximately $7.7 million with a corresponding increase in the Company’s deferred tax assets. The Company will continue to monitor the impact of changes in tax legislation.