NATHANS FAMOUS, INC. Income Taxes Disclosure

NOTE H – INCOME TAXES

 

The income tax provision consists of the following for the fiscal years ended March 30, 2025 and March 31, 2024:                  

 

		March 30,				March 31,
		2025				2024
Federal
Current		$	6,909			$	5,767
Deferred			(190	)			118
Total Federal income tax			6,719				5,885
State and local
Current			2,060				1,903
Deferred			(44	)			47
Total State and local income tax			2,016				1,950
Total provision for income taxes		$	8,735			$	7,835

 

The income tax provisions for the fiscal years ended March 30, 2025 and March 31, 2024 reflect effective tax rates of 26.7% and 28.5%, respectively.

 

The total income tax provision for the fiscal years ended March 30, 2025 and March 31, 2024 differs from the amounts computed by applying the United States Federal income tax rate of 21% to income before income taxes as a result of the following:                                                       

		March 30,				March 31,
		2025				2024
Income tax provision at the U.S. Federal statutory rate		$	6,880			$	5,765
State and local income taxes, net of U.S. Federal income tax benefit			1,527				1,485
Change in uncertain tax positions, net			116				73
Nondeductible meals and entertainment and other			(72	)			(24	)
Nondeductible executive compensation			284				536
Total provision for income taxes		$	8,735			$	7,835

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

 

		March 30,				March 31,
		2025				2024
Deferred tax assets
Accrued expenses		$	312			$	303
Allowance for credit losses			159				101
Deferred revenue			246				305
Deferred stock compensation			106				28
Operating lease liability			1,189				1,505
Other			177				151
Total deferred tax assets		$	2,189			$	2,393
Deferred tax liabilities
Deductible prepaid expense		$	125			$	150
Operating lease right-of-use asset			1,091				1,373
Depreciation expense			360				465
Amortization			103				130
Total deferred tax liabilities			1,679				2,118
Net deferred tax asset		$	510			$	275

 

A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. We consider the level of historical taxable income, scheduled reversal of temporary differences, tax planning strategies and projected future taxable income in determining whether a valuation allowance is warranted. Based upon these considerations, management believes that it is more likely than not that the Company will realize the benefit of its deferred tax asset.

 

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, for the fiscal years ended March 30, 2025 and March 31, 2024:

 

		March 30, 2025				March 31, 2024
Unrecognized tax benefits, beginning of year		$	465			$	432
Decreases of tax positions taken in prior years			(60	)			(19	)
Increases based on tax positions taken in current year			127				52
Unrecognized tax benefits, end of year		$	532			$	465

 

The amount of unrecognized tax benefits included in Other liabilities at March 30, 2025 and March 31, 2024 were $532 and $465, respectively, all of which would impact Nathan’s effective tax rate, if recognized. As of March 30, 2025 and March 31, 2024, the Company had $395 and $345, respectively, accrued for the payment of interest and penalties. For the fiscal years ended March 30, 2025 and March 31, 2024, Nathan’s recognized interest and penalties in the amounts of $49 and $41, respectively.

 

During the fiscal year ending March 29, 2026, we believe it is reasonably possible the amount of unrecognized tax benefits, excluding the related accrued interest and penalties, could be reduced by up to $55, due primarily to the lapse of statutes of limitations which would favorably impact Nathan’s effective tax rate, although no assurances can be given in this regard.

 

On August 16, 2022 the United States enacted the Inflation Reduction Act. Among other provisions, this law imposes a 1% excise tax on stock buybacks made after December 31, 2022, with certain exceptions including stock repurchases of less than $1,000 within a tax year. We do not expect this law to have a material impact on our consolidated financial statements.

 

The American Rescue Plan Act (“ARPA”), among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations. Effective tax years starting after December 31, 2026 (March 29, 2027 for the Company), ARPA expands the limitation to cover the next five most highly compensated employees. We continue to evaluate the potential impact ARPA may have on our operations and consolidated financial statements in future periods.

 

The earliest tax years that are subject to examination by taxing authorities by major jurisdictions are as follows:

 

Jurisdiction		Fiscal Year
Federal		2022
New York State		2022
New York City		2022
New Jersey		2021
California		2021