Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.1
Income Taxes
 12 Months Ended
Jan. 30, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
On March 27, 2020, the Federal government of the United States enacted the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) which includes a number of significant changes to the existing U.S. tax laws including postponing the filing date of specific federal income tax returns and payments from April 15, 2020 to July 15, 2020, temporarily increasing the 30% limitation on the interest deduction to 50%, introduction of a capital investment deduction for Qualified Improvement Property (“QIP”), and change in the use of net operating losses. The Company’s federal net operating losses that have been incurred in tax years beginning on or before December 31, 2017 will have a 20-year carryforward limitation, a two-year carryback period and can offset 100% of future taxable income. Net operating losses incurred in tax years beginning after December 31, 2017 and before January 1, 2021 will have an indefinite life, a five-year carryback period and can offset 100% of future taxable income prior to 2021 and 80% of future taxable income after 2020. Net operating losses incurred in tax years beginning on or after January 1, 2021 will have an indefinite life, generally no carryback period and can offset 80% of future taxable income.
State taxes for the fiscal years ended January 30, 2022, January 31, 2021 and February 2, 2020, were approximately $2.2 million, $0.1 million and less than $0.1 million respectively.
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 material interest or penalties during the fiscal years 2022, 2021, and 2020, 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 consolidated statements of operations.
The components of deferred income taxes follow:
2022 2021
Deferred Income Tax Assets
Federal net operating loss carryforward $ 2,082  $ 7,763 
State net operating loss carryforward 1,403  1,818 
Intangible assets 397  286 
Accrued liabilities 5,646  4,423 
Equity-based compensation 2,032  1,083 
Property and equipment —  640 
Merchandise inventories 689  330 
Charitable Contributions 12  10 
Total Deferred Income Tax Assets 12,261  16,353 
Deferred Income Tax Liabilities
    Property and equipment (2,425) — 
Valuation Allowance —  (16,353)
Net Deferred Income Tax Asset $ 9,836  $ — 
The income tax provision differs from the amount obtained by applying the statutory Federal income tax rate to pre-tax income as follows:
2022 2021 2020
Provision (benefit) at Federal Statutory rates $ 8,035  $ 3,111  $ (3,184)
Permanent adjustments (1,039) (411) (848)
State tax, net of Federal provision (benefit) 1,737  496  (582)
Change in state deferred tax 146  —  — 
Federal True-ups (164) 61  (394)
Uncertain tax positions- NOLS —  —  (10,753)
Change in valuation allowance (16,353) (3,171) 15,804 
Income (benefit) tax provision $ (7,638) $ 86  $ 43 
The Company is subject to federal, state and local corporate income taxes. The components of the provision for income taxes reflected on the consolidated statements of operations are set forth below:
2022 2021 2020
Current taxes:
U.S. federal $ —  $ —  $ — 
State and local 2,198  86  43 
Total current tax expense $ 2,198  $ 86  $ 43 
Deferred taxes:
U.S. federal $ (7,254) $ —  $ — 
State and local (2,582) —  — 
Total deferred tax expense (benefit) (9,836) —  — 
Total tax provision $ (7,638) $ 86  $ 43 
Differences in terms of percentages are as follows:
2022 2021 2020
Provision (benefit) at Federal Statutory rates 21.0  % 21.0  % (21.0) %
Permanent adjustments (2.7) % (2.8) % (5.6) %
State tax, net of Federal provision (benefit) 4.5  % 3.4  % (3.8) %
Change in state deferreds 0.4  % —  % —  %
Federal True-ups (0.4) % 0.4  % (2.6) %
Uncertain tax positions- NOLS —  % —  % (70.9) %
Change in valuation allowance (42.7) % (21.4) % 104.2  %
Income tax provision (20.0) % 0.6  % 0.3  %
At January 30, 2022 and January 31, 2021, the Company has net operating loss carryforwards available for federal income tax purposes of approximately $9.9 million and $37.0 million, respectively, which are scheduled to expire in varying amounts from fiscal 2027 to fiscal 2037. In addition, the Company has approximately $22.2 million and $30.4 million of state net operating loss carryforwards as of January 30, 2022 and January 31, 2021, respectively. In fiscal 2021 a reserve had been released that was previously recorded against the net operating losses in accordance with ASC 740-10 due to a Private Letter Ruling (“PLR”) that was issued by the IRS. The PLR approved the late filing of Form 8832, “Entity Classification Election”. Due to the filing of this form, the Company believes that the Federal and State NOLs will be available for future utilization.
As defined in Section 382 of the Internal Revenue Code, certain ownership changes limit the annual utilization of federal net operating losses. As a result of issuance, sales and other transactions involving the Company’s stock, the Company experienced an ownership change during fiscal years ended January 31, 2011, February 2, 2020, and January 30, 2022 which have caused such federal net operating losses to be subject to limitation under Section 382. The annual base limitation from 2011, 2019, and 2022 are approximately $0.3 million, $5.9 million, and $7.7 million respectively. The Company is entitled to additional limitation based on the net unrealized built-in gain computation, which results in additional limitation of approximately $40.0 million over the next 5 years.
During fiscal years ending January 30, 2022, January 31, 2021, and February 2, 2020, the Company increased/(decreased) the valuation allowance by approximately $(16.4) million, $(3.2) million, and $15.8 million, respectively. The Company reversed its valuation allowance during the fiscal year ended January 30, 2022 since it is more likely than not that the remaining net deferred tax assets will be realized. As of January 30, 2022, the Company does not have a valuation allowance against its net deferred tax assets.
2022 2021 2020
Beginning balance $ —  $ —  $ 10,753 
Additions for tax positions acquired —  —  — 
Additions for tax positions related to current year —  —  — 
Tax positions of prior years:
Payments —  —  — 
Settlements —  —  — 
Release —  —  (10,753)
Ending balance $ —  $ —  $ —