Annual report pursuant to Section 13 and 15(d)

Note 9 - Income Taxes

v3.7.0.1
Note 9 - Income Taxes
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
Note
9:
Income Taxes
 
Income tax provision (benefit) reported in the consolidated statements of operations is comprised of the following:
 
    December 31,
    2016   2015
Current provision (benefit):                
Federal   $
22,800
     $
(208,900
 )
State, net of state tax credits    
20,900
      
(67,800
 )
Total current provision (benefit)    
43,700
      
(276,700
 )
                 
Deferred provision:                
Federal    
97,400
      
40,800
  
State    
23,300
      
-
  
Total deferred provision    
120,700
      
40,800
  
                 
Total income tax provision (benefit)   $
164,400
     $
(235,900
 )
 
The following are the components of the Company’s net deferred taxes for federal and state income taxes:
 
    December 31,
    2016   2015
         
Deferred revenue   $
1,509,400
     $
1,988,200
  
Deferred franchise costs    
(553,900
 )    
(664,000
 )
Allowance for doubtful accounts    
51,400
      
1,781,000
  
Accrued expenses    
57,400
      
74,900
  
Goodwill - Component 1    
(120,700
 )    
-
  
Goodwill - Component 2    
86,800
      
87,000
  
Restricted stock compensation    
(30,800
 )    
(44,100
 )
Nonqualified stock options    
182,100
      
109,600
  
Deferred rent    
629,600
      
209,700
  
Lease abandonment    
108,900
      
-
  
Net operating loss carryforwards    
8,924,800
      
1,849,100
  
Tax credits    
14,000
      
14,200
  
Charitable contribution carryover    
6,500
      
1,300
  
Asset basis difference related to property and equipment    
630,900
      
167,500
  
     
11,496,400
      
5,574,400
  
Less valuation allowance    
(11,617,100
 )    
(5,574,400
 )
Net non-current deferred tax liability   $
(120,700
 )   $
-
  
 
At
December
31,
2016,
the Company has federal and state net operating losses of approximately
$22,613,000
and
$24,948,000,
respectively. These net operating losses are available to offset future taxable income and will begin to expire in
2035
for federal purposes and
2020
for state purposes.
 
The following is a reconciliation of the statutory federal income tax rate applied to pre-tax accounting net income (loss), compared to the income tax provision (benefit) in the consolidated statement of operations:
 
    For the Years Ended December 31,
    2016   2015
    Amount   Percent   Amount   Percent
Expected federal tax expense (benefit)   $
(5,106,100
 )    
(34.00
 )%   $
(3,071,300
 )    
(34.00
 )%
State tax provision, net of federal benefit    
(735,500
 )    
(4.90
 )    
(387,500
 )    
(4.29
 )
Effect of increase in valuation allowance    
6,042,900
      
40.24
      
3,519,800
      
38.97
  
Permanent differences    
108,800
      
0.72
      
(58,800
 )    
(0.65
 )
Uncertain tax positions    
-
      
-
      
(46,500
 )    
(0.51
 )
Effect of changed state rates for deferred    
-
      
-
      
(80,100
 )    
(0.89
 )
Other, net    
(145,700
 )    
(0.97
 )    
(111,500
 )    
(1.23
 )
Provision (Benefit)   $
164,400
      
1.09
 %   $
(235,900
 )    
(2.60
 )%
 
The state tax expense (benefit), penalties and interest stem from resolution of various voluntary disclosure agreements with multiple states where we had not yet been in compliance. In addition, we are responsible to pay certain minimum and franchise taxes to jurisdictions in which we do business.
 
Changes in our income tax expense related primarily to changes in pretax losses during the year ended
December
31,
2016,
as compared to year ended
December
31,
2015,
and the effective rate was
1.1%
and -
2.6%,
respectively. The difference is due to a valuation allowance on the Company's deferred tax assets, and the impact of certain permanent differences on taxable income.
 
For the year ended
December
31,
2016
and
2015,
the Company recorded a liability for income taxes for operations and uncertain tax positions of approximately
$40,000
and
$66,000,
respectively, of which
$27,000
and
$33,000
respectively, represent penalties and interest and are recorded in the “other liabilities” section of the accompanying consolidated balance sheets. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. Management made a determination that the Company was not in compliance with several state and local tax jurisdictions in which the company was doing business. Accordingly, management undertook to analyze its tax exposures, both income and otherwise, with respect to jurisdictions in which compliance was deemed to be inadequate and the Company has entered into Voluntary Disclosure Agreements (VDAs) with the taxing authorities.
  
The following table sets forth a reconciliation of the beginning and ending amount of uncertain tax positions during the tax years ended
December
31,
2016
and
2015:
 
    2016   2015
    Tax   Interest/
penalties		   Tax   Interest/
penalties
Unrecognized tax benefit - January 1   $
32,600
     $
33,000
     $
91,700
     $
30,000
  
Gross increases - tax positions in prior period    
-
      
-
      
-
      
3,000
  
Gross decreases - tax positions in prior period    
(19,400
 )    
(6,200
 )    
(59,100
 )    
-
  
Unrecognized tax benefit - December 31   $
13,200
     $
26,800
     $
32,600
     $
33,000
  
 
Our tax returns for tax years subject to examination by tax authorities include
2012
through the current period for state and
2013
through the current period for federal reporting purposes.