Table of Contents
9. INCOME TAXES
We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on differences between financial reporting and tax basis of
assets and liabilities. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We establish
valuation allowances for tax benefits when we believe it is more likely than not that such assets will not be realized.
In accordance with FASB ASC 740: Accounting for Income Taxes ("FASB ASC 740"), we regularly evaluate the likelihood of recognizing the benefit for income tax positions we have taken in various
federal and state filings by considering all relevant facts, circumstances, and information available. For those benefits that we believe it is more likely than not that the benefit will be sustained, we
recognize the largest amount we believe is cumulatively greater
The provision for income taxes consists of the following:
2010
2009
2008
Current provision:
Federal
State
$2,121,604
286,171
2,407,775
$1,461,655
197,828
1,659,483
$766,333
202,600
968,933
Federal
State
(80,991)
(9,529)
(90,520)
37,632
3,144
40,776
428,660
48,830
477,490
$2,317,255
$1,700,259
$1,446,423
Deferred provision (benefit):
Income before income taxes is earned in the following tax jurisdictions:
2010
2009
United States
United Kingdom
Canada
2008
$5,670,352
319,290
486,981
$6,476,623
$4,437,072
324,924
284,350
$5,046,346
$3,716,554
(176,257)
571,775
$4,112,072
The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
2010
2009
Deferred income tax assets:
Allowance for doubtful accounts
Capitalized inventory costs
Warrants and stock-based compensation
Accrued expenses, reserves, and other
Total deferred income tax assets
$55,414
154,712
45,116
97,383
352,625
$50,650
131,447
45,116
89,384
316,597
Deferred income tax liabilities:
Property and equipment depreciation
Goodwill and other intangible assets amortization
Total deferred income tax liabilities
534,639
139,020
673,659
604,287
123,193
727,480
$(321,034)
$(410,883)
Net deferred tax asset (liability)
The net deferred tax liability is classified on the balance sheets as follows:
2010
Current deferred tax assets
Long-term deferred tax liabilities
Net deferred tax asset (liability)
2009
$307,509
(628,543)
$(321,034)
$271,481
(682,364)
$(410,883)
The effective tax rate differs from the statutory rate as follows:
2010
Statutory rate
State and local taxes
Domestic production activities deduction
Other, net
Effective rate
2009
34%
4%
(1%)
(1%)
36%
2008
34%
4%
(2%)
(2%)
34%
34%
9%
(2%)
(4%)
37%
We file a consolidated U.S. income tax return as well as state tax returns on a consolidated, combined or stand-alone basis, depending on the jurisdiction. We are no longer subject to U.S. federal income
tax examinations by tax authorities for years prior to the tax year ended December 2008. Depending on the jurisdiction, we are no longer subject to state examinations by tax authorities for years prior to
the December 2007 and December 2008 tax years.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
We lease our store locations under five-year lease agreements that expire on dates ranging from May 2011 to May 2016. Rent expense on all operating leases for the years ended December 31, 2010, 2009,
and 2008, was $2,721,281, $2,513,297, and $2,575,642, respectively.
Future minimum lease payments under noncancelable operating leases at December 31, 2010 were as follows:
Year ending December 31:
2011
2012
2013
2014
2015
2016 and thereafter
$2,498,662
1,991,867
1,261,561
807,343
399,534
69,343
$7,028,310
Total minimum lease payments
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