INCOME TAXES

12 Months Ended

Aug. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 9 - INCOME TAXES

We utilize FASB ASC 740-10, “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

The components of the income tax provision for fiscal year 2020, 2019 and 2018 were as follows:

	2020			2019			2018
Current
Federal	$	2,097,725		$	1,794,596		$	2,370,955
State		477,744			426,364			460,619
Foreign		39,038			51,285			104,377
Total current tax expense (benefit)		2,614,507			2,272,245			2,935,951
Deferred
Federal		(427,644	)		(140,730	)		(1,698,201	)
State		(131,874	)		(158,368	)		(33,620	)
Total deferred federal and state		(559,518	)		(299,098	)		(1,731,821	)
Total	$	2,054,989		$	1,973,147		$	1,204,130

A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company's effective income tax rate is as follows for fiscal year 2020, 2019 and 2018:

	2020			2019			2018
Income tax computed at federal statutory tax rate		21.0	%		21.0	%		25.4	%
State taxes, net of federal benefit		4.2			4.1			4.0
Meals & entertainment		0.1			0.1			0.0
Stock based compensation		(1.2	)		(2.6	)		0.5
Other permanent differences		(0.3	)		(0.7	)		1.2
Research and development credit		(2.7	)		(2.3	)		(2.6	)
Foreign tax related differences		(1.4	)		–			–
Research & credit adjustments to expense		0.3			–			–
Domestic production activities		–			–			(1.8	)
Change in deferred income taxes due to statutory rate changes		–			–			(14.8	)
Change in prior year estimated taxes		(1.8	)		(0.9	)		(0.0	)
Total		18.0	%		18.7	%		11.9	%

Significant components of the Company's deferred tax assets and liabilities for income taxes for the fiscal years ended August 31, 2020 and 2019 are as follows:

	2020			2019
Deferred tax assets
Accrued payroll and other expenses	$	402,355		$	236,455
Deferred revenue		6,862			55,038
Capitalized merger costs		742,056			361,103
Intellectual property		7,677			9,301
State taxes		100,326			89,537
Allowance for doubtful accounts		13,450			–
State tax deferred		125,417			146,815
Total deferred tax assets		1,398,143			898,249
Less: Valuation allowance		–			–
Deferred tax asset		1,398,143			898,249
Deferred tax liabilities
Property and equipment		(81,910	)		(61,991	)
State tax deferred		(19,468	)		(16,471	)
Intellectual property		(1,876,274	)		(2,217,234	)
Capitalized computer software development costs		(1,774,349	)		(1,334,169	)
Total deferred tax liabilities		(3,752,001	)		(3,629,865	)
Net deferred tax liabilities	$	(2,353,858	)	$	(2,731,616	)

We follow guidance issued by the FASB with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to income tax expense. Interest and penalties totaled $332, $2,531, and $-0- for fiscal years 2020, 2019, and 2018, respectively. We file income tax returns with the IRS and various state jurisdictions and India. Our federal income tax returns for fiscal year 2016 thru 2019 are open for audit, and our state tax returns for fiscal year 2015 through 2019 remain open for audit. In addition, our California tax return for the fiscal year 2007 and fiscal year 2008 remains open with regard to R&D tax credits as a result of a previous audit for which we received a letter from the California Franchise Tax Board stating that an audit will not be conducted for those years at this time; however it may be subject to future audit.

Our review of prior year tax positions using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position or results of operations.