INCOME TAXES

12 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 18 – INCOME TAXES

The income tax (provision) benefit for the periods shown consist of the following:

	2022			2021
Current
US Federal	$	(1,302,811	)	$	-
US State		(446,667	)		-
Total current provision		(1,749,488	)		-
Deferred
US Federal		(7,727,011	)		582,724
US State		(2,649,291	)		137,276
Total deferred benefit		(10,376,272	)		720,000
Change in valuation allowance		8,839,791			(720,000	)
Income tax (provision) benefit	$	(3,285,969	)	$	-

The reconciliation of income tax expense computed at the U.S. federal statutory rate of 21% to the income tax provision for the years ended March 31, 2022 and 2021 is as follows:

	2022			2021
Computed tax expense		21	%		21	%
State taxes, net of Federal income tax benefit		7	%		5	%
Change in valuation allowance		(24	%)		(10	%)
Employee stock awards		4	%		(5	%)
Stock grants		0	%		(1	%)
Stock for services		0	%		(6	%)
Rent expense		0	%		0	%
Non-deductible meals & entertainment		0	%		0	%
Stock and warrants on note conversion		0	%		(5	%)
Contingent consideration fair value		1	%		0	%
Total provision for income taxes		9	%		0	%

The Company’s effective tax rates were 9% and 0% for the years ended March 31, 2022 and 2021, respectively. During the years ended March 31, 2022 and 2021, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance.

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant components of the Company’s deferred tax liabilities and assets at March 31, 2022 and March 31, 2021 are as follows:

	2022			2021
Deferred tax assets
Net operating loss carryforward	$	-		$	8,119,764
Loss on purchase		879,319			801,366
Other		-			442,953
Total deferred tax assets	$	879,319		$	9,364,083
Deferred tax liabilities
Depreciation expense	$	(2,208,361	)	$	(1,377,238	)
Other		(207,439	)		-
Total deferred tax liabilities	$	(2,415,800	)	$	(1,377,238	)
Net deferred tax assets/(liabilities)	$	(1,536,481	)	$	7,986,845
Valuation allowance		-			(7,986,845	)
Total net deferred tax assets/(liabilities)	$	(1,536,481	)	$	-

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. The Company considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available and due to the significant income generated in current period there is no longer substantial doubt related to the Company’s ability to utilize its deferred tax assets, the Company removed the full valuation allowance of the deferred tax asset. For the years ended March 31, 2021, the valuation allowance increased by $720,000.

At March 31, 2021, the Company had Federal net operating loss carry forwards (“NOLs”) for income tax purposes of $31,594,411. A valuation allowance was provided for the deferred tax asset as it is uncertain at that time whether the Company will have future taxable income. There were $5,144,926 of NOLs generated prior to 2018 will begin to expire in 2036. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) signed in to law on March 27, 2020, provided that NOLs generated in a taxable year beginning in 2018, 2019, or 2020, may now be carried back five years and forward indefinitely. In addition, the 80% taxable income limitation is temporarily removed, allowing NOLs to fully offset net taxable income. Once fully utilized in the current year, the Company will have no remaining NOLs available for use. In accordance with Section 382 of the Internal Revenue Code, the future utilization of the Company’s net operating loss to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future. The Company does not believe that such an ownership change has occurred to date.

The Company accounts for uncertain tax positions in accordance with ASC No. 740-10-25. ASC No. 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No. 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. ASC No. 740-10-25 also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. The Company has evaluated tax positions taken by the Company and has concluded that as of March 31, 2022 and 2021, there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.

The Company has never had an Internal Revenue Service audit; therefore, the tax periods ended December 31, 2016, December 31, 2017 and March 31, 2018, 2019, 2020, 2021 and 2022 are subject to audit.

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS