Note 16 - Income Taxes |
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Income Tax Disclosure [Text Block] |
16. Income Taxes
The components of the Company’s tax provision (benefit) as of September 30, 2022 and 2021, is as follows:
The Company’s income tax provision was computed using the federal statutory rate and average state statutory rates, net of related federal benefit. The provision differs from the amount computed by applying the statutory federal income tax rate to pretax income, as follows:
As of September 30, 2022, the Company has federal net operating loss (“NOL”) carryforwards of approximately $27.8 million of which $21.9 million is subject to the 20-year carryforward and expire on various dates through 2039. The remaining federal NOL carryforward of $5.9 million is indefinite. Internal Revenue Code Section 382 places a limitation on the amount of taxable income which can be offset by NOL carryforwards after a change in control of a loss corporation. Due to these “change of ownership” provisions, utilization of NOL carryforwards may be subject to an annual limitation in future periods. The Company has not performed a Section 382 analysis. However, if performed, Section 382 may be found to limit potential future utilization of the Company’s NOL carryforwards. The Company also has approximately $46.8 million in state NOLs which expire on various dates through 2041.
The Company has deferred tax assets that are available to offset future taxable income. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax assets will not be realized. Management believes that it is more likely than not that all deferred tax assets will not be realized. Accordingly, the Company has established a valuation allowance against a portion of its deferred tax assets at September 30, 2022 and 2021. For the years ended September 30, 2022 and 2021, the valuation allowance for deferred tax assets increased by $0.4 million and decreased by $1.2 million, respectively.
The acquisition of HawkSearch, Inc. in fiscal 2021 (see Note 17) resulted in the recognition of deferred tax liabilities of approximately $1,181 related to intangible assets. Prior to the business combination, the Company had a full valuation allowance on its net deferred tax assets. The deferred tax liabilities generated from the business combination netted against the Company’s pre-existing deferred tax assets. Consequently, the impact of such resulted in the release of $1,181 of the pre-existing valuation allowance against the deferred tax assets and corresponding deferred tax benefit recognized during the year ended September 30, 2021.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, are recognized as a component of tax expense.
The Company is subject to U.S. federal income tax as well as income tax of certain state jurisdictions. The Company has not been audited by the Internal Revenue Service (“IRS”) or any states in connection with income taxes. The tax periods from – generally remain open to examination by the IRS and state authorities.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
Net deferred tax assets are reflected in Other assets and net deferred tax liabilities are reflected in Other long-term liabilities on the consolidated balance sheets. Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $0 at September 30, 2022 and 2021. The 2017 Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, provides that an entity may make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years, or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Additionally, the 2017 Tax Act provides for a tax benefit to U.S. taxpayers that sell goods or services to foreign customers under the new Foreign Derived Intangible Income Deduction ("FDII") rules. As of September 30, 2022, the Company reported GILTI of $0.4 million, which resulted in $0.1 million of tax expense for the year ended September 30, 2022. When accounting for uncertain income tax positions, the impact of uncertain tax positions is recognized in the consolidated financial statements if they are more likely than not of being sustained upon examination, based on the technical merits of the position. The Company’s management has determined that the Company has no uncertain tax positions requiring recognition as of September 30, 2022 and 2021. The Company does not expect any change to this determination in the next twelve months.
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