NATHANS FAMOUS, INC. Income Taxes Disclosure

NOTE H – INCOME TAXES

 

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires public business entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid. The Company adopted ASU 2023-09 on a retrospective basis for the years ended March 29, 2026 and March 30, 2025 for comparability and consistency purposes.

 

The income tax provision consists of the following for the fiscal years ended March 29, 2026 and March 30, 2025:                  

 

		March 29,				March 30,
		2026				2025
Federal
Current		$	6,493			$	6,909
Deferred			(115	)			(190	)
Total Federal income tax			6,378				6,719
State and local
Current			1,765				2,060
Deferred			27				(44	)
Total State and local income tax			1,792				2,016
Total provision for income taxes		$	8,170			$	8,735

 

The income tax provisions for the fiscal years ended March 29, 2026 and March 30, 2025 reflect effective tax rates of 28.9% and 26.7%, respectively.

 

The total income tax provision for the fiscal years ended March 29, 2026 and March 30, 2025 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 29,								March 30,
		2026								2025
Income tax provision at the U.S. Federal statutory rate		$	5,920				21.0	%		$	6,880				21.0	%
State and local income taxes, net of U.S. Federal income tax benefit			1,425				5.0	%			1,527				4.7	%
Effect of cross-border tax laws
Foreign derived intangible income			(67	)			(0.2%	)			(42	)			(0.1%	)
Nontaxable and nondeductible items
Executive compensation			283				1.0	%			283				0.9	%
Merger costs			619				2.2	%			-				-
Change in uncertain tax positions, net			(44	)			(0.2%	)			116				0.3	%
Other adjustments			34				0.1	%			(29	)			(0.1%	)
Total provision for income taxes		$	8,170				28.9	%		$	8,735				26.7	%

 

For the fiscal years ended March 29, 2026 and March 30, 2025, state and local income taxes in New York, New Jersey and California comprised the majority (greater than 50%) of the tax effect in the state and local income taxes, net of federal income tax effect category. 

 

The income taxes paid (net of refunds) by jurisdictions are set forth below:

 

		March 29,				March 30,
		2026				2025
Jurisdiction
Federal		$	6,300			$	6,500
State and local			1,886				1,989
Foreign			-				-
Total income taxes paid, net		$	8,186			$	8,489
State
New York State (including MTA & NYC)		$	-			$	710

 

No individual state jurisdiction equaled or exceeded 5% of total income taxes paid (net of refunds) for the fiscal year ended March 29, 2026. New York State, which includes MTA & NYC, exceeded the 5% threshold for the fiscal year ended March 30, 2025.

 

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 29,				March 30,
		2026				2025
Deferred tax assets
Accrued expenses		$	325			$	312
Allowance for credit losses			193				159
Deferred revenue			172				246
Deferred stock compensation			219				106
Operating lease liability			878				1,189
Other			136				177
Total deferred tax assets		$	1,923			$	2,189
Deferred tax liabilities
Deductible prepaid expense		$	153			$	125
Operating lease right-of-use asset			818				1,091
Depreciation expense			288				360
Amortization			66				103
Total deferred tax liabilities			1,325				1,679
Net deferred tax asset		$	598			$	510

 

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 29, 2026 and March 30, 2025:

 

		March 29, 2026				March 30, 2025
Unrecognized tax benefits, beginning of year		$	532			$	465
Decreases of tax positions taken in prior years			(205	)			(60	)
Increases based on tax positions taken in current year			35				127
Unrecognized tax benefits, end of year		$	362			$	532

 

The amount of unrecognized tax benefits included in Other liabilities at March 29, 2026 and March 30, 2025 were $362 and $532, respectively, all of which would impact Nathan’s effective tax rate, if recognized. As of March 29, 2026 and March 30, 2025, the Company had $355 and $395, respectively, accrued for the payment of interest and penalties. For the fiscal years ended March 29, 2026 and March 30, 2025, Nathan’s recognized interest and penalties in the amounts of $9 and $49, respectively.

 

During the fiscal year ending March 28, 2027, 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 $50, 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.

 

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.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, and the business interest expense limitation. The OBBBA did not have a material impact to our provision for income taxes on our consolidated financial statements for the fiscal year ending March 29, 2026.

 

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

 

Jurisdiction	Fiscal Year
Federal	2023
New York State	2023
New York City	2023
New Jersey	2022
California	2022