Income Taxes

12 Months Ended

Nov. 30, 2020

Income Taxes

Income Taxes

5. Income Taxes

As discussed above (see Note 1), INDUS intends to elect to be taxed as a REIT for the taxable year ending December 31, 2021. To qualify as a REIT, INDUS is required (among other things) to distribute at least 90% of its REIT taxable income to its stockholders and meet various other organization and operating requirements. Provided the

Company qualifies for taxation as a REIT, it generally will not be subject to federal income taxes if it distributes 100% of its taxable income for each year to its stockholders. However, any taxable income from a taxable REIT subsidiary will be subject to federal, state and local income taxes. If INDUS fails to qualify as a REIT in any taxable year, and it is unable to avail itself of certain savings provisions set forth in the Code, all of its taxable income will be subject to regular federal corporate income tax, and it may not be able to qualify as a REIT for four subsequent taxable years. Additionally, even if INDUS qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property and to federal income taxes and excise taxes on its undistributed taxable income. INDUS may also be subject to a corporate income tax on any gains recognized during a five-year period following the REIT conversion that are attributable to built-in gains with respect to assets that were owned on January 1, 2021.

In connection with the election to be taxable as a REIT for the taxable year ending December 31, 2021, the Company reassessed its deferred tax assets and deferred tax liabilities during the fourth quarter of fiscal 2020, which resulted in de-recognizing all of its deferred tax assets and deferred tax liabilities. This de-recognition occurred because the expected recovery or settlement of the related assets and liabilities will not result in deductible or taxable amounts in any taxable year in which INDUS qualifies as a REIT. As a result of the de-recognition valuation, INDUS recorded an income tax expense in fiscal 2020 of $4,005. Additionally, the Company does not intend to recognize any built-in gains within the five years following the REIT election. To the extent INDUS does sell a property with a built-in gain, the intent is to use a non-taxable deferral under a 1031 Like-Kind Exchange. In the unlikely event that the Company is not able to identify suitable replacement property or complete the 1031 Like-Kind Exchange in time, INDUS will have at its disposal net operating losses available to offset the gain.

The income tax (provision) benefit for fiscal 2020, fiscal 2019 and fiscal 2018 is summarized as follows:

	For the Fiscal Years Ended
	Nov. 30,		Nov. 30,		Nov. 30,
	2020		2019		2018
Current federal	$	—	$	—	$	25
Current state and local		—		(88)		(102)
Deferred federal		(1,919)		(511)		(678)
Deferred state and local		(1,157)		812		250
Total income tax (provision) benefit	$	(3,076)	$	213	$	(505)

The income tax provision for fiscal 2019 included a credit of $873 for the partial reduction of the valuation allowance on deferred tax assets related primarily to net operating loss carryforwards in Connecticut as a result of the change in Connecticut’s tax law whereby the capital based tax is being phased out over four consecutive years beginning January 1, 2021. The income tax provision in fiscal 2019 is also net of the effect of recording a benefit related to valuation allowances on certain state deferred tax assets (principally Connecticut) of $921, less federal income tax expense of $193.

The income tax provision for fiscal 2018 included a charge of $1,001 for the re-measurement of INDUS’s deferred tax assets and deferred tax liabilities as a result of the reduction in the U.S. federal corporate statutory rate from 35% to 21%, under the Tax Cuts and Jobs Act (“TCJA”), which was enacted on December 22, 2017 and became effective for INDUS in the 2018 first quarter. As the Company had net deferred tax assets when the TCJA became effective for it, the re-measurement of its deferred tax assets and deferred tax liabilities resulted in the charge that is included in fiscal 2018. INDUS’s statutory income tax rate in fiscal 2018 as a result of the TCJA was a blended rate of approximately 22%. In fiscal 2018, prior to the effective date of the U.S. federal corporate statutory income tax rate reduction, INDUS recorded a deferred tax asset of $879 related to the cumulative effect of stock option exercises upon adoption of ASU No. 2016-09.

The income tax provision in fiscal 2018 is net of the effect of recording a charge related to valuation allowances on certain state deferred tax assets (principally Connecticut) of $681 less a federal income tax benefit of $146. The establishment of the valuation allowances reflected management’s determination at the time that it was more likely than

not that INDUS would not generate sufficient future taxable income to fully utilize certain state net operating loss carryforwards.

Other comprehensive income (loss) includes deferred tax (expense) benefit as follows:

	For the Fiscal Years Ended
	Nov. 30,		Nov. 30,		Nov. 30,
	2020		2019		2018
Fair value adjustment of INDUS's cash flow hedges	$	—	$	1,586	$	(797)

The differences between the income tax provision at the U.S. statutory income tax rate and the actual income tax provision for fiscal 2020, fiscal 2019 and fiscal 2018 are as follows:

	For the Fiscal Years Ended
	Nov. 30,		Nov. 30,		Nov. 30,
	2020		2019		2018
Tax (provision) benefit at statutory rate	$	2,025	$	(726)	$	255
Deferred tax adjustment due to REIT election		(4,005)		-		-
State and local taxes, including valuation allowance, net of federal tax effect		117		737		78
Permanent items		(1,253)		44		(24)
Federal rate change under TCJA		-		-		(1,001)
Other		40		158		187
Total income tax (provision) benefit	$	(3,076)	$	213	$	(505)

In fiscal 2020, the permanent differences primarily consist of the change in the fair value of financial instruments of ($1,255) and, to a lesser extent, non-deductible costs related to the REIT conversion of ($175) offset by the tax benefit of options exercised of $255.

INDUS had no remaining deferred tax assets or deferred tax liabilities as of November 30, 2020. The significant components of the Company’s deferred tax assets and deferred tax liabilities for the year ended November 30, 2019 were as follows:

Deferred tax assets (liabilities):
Federal net operating loss carryforwards	$	2,759
State net operating loss carryforwards		2,087
Deferred revenue		2,372
Retirement benefit plans		1,521
Cash flow hedges		938
Non-qualified stock options		424
Disallowed interest		—
Real estate assets		(4,274)
Deferred rent		(956)
Other		(128)
Total deferred tax assets		4,743
Valuation allowances		(1,462)
Net total deferred tax assets	$	3,281

At November 30, 2020, INDUS had federal net operating loss carryforwards of approximately $17,071 with expirations ranging from thirteen to twenty years and state net operating loss carryforwards of approximately $33,916 with expirations ranging from eight to twenty years. These deferred tax assets were de-recognized as of November 30, 2020, however, they remain available to the Company in the event that taxable income is generated.

In prior years, management had determined that a valuation allowance was required for net operating loss carryforwards in Connecticut related to INDUS and Imperial Nurseries, Inc. (“Imperial”) and for certain other states related to Imperial. INDUS evaluated the likelihood that it would realize the benefits of its deferred tax assets. Based on a significant amount of appreciated assets, primarily real estate, held by the Company and the significant length of time expected before its net operating loss carryforwards would expire, INDUS concluded that it was more likely than not that it would have utilized the benefit of its remaining deferred tax assets.

INDUS evaluated each tax position taken in its tax returns and recognized a liability for any tax position deemed less likely than not to be sustained under examination by the relevant taxing authorities. The Company believes that its income tax filing positions will be sustained on examination and does not anticipate any adjustments that would result in a material change on its financial statements. As a result, no accrual for uncertain income tax positions has been recorded pursuant to ASC 740.

Federal income tax returns for the fiscal year ended November 30, 2017 (“fiscal 2017”), fiscal 2018 and fiscal 2019 are open to examination by the Internal Revenue Service (“IRS”).