Income Taxes

12 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Malibu Boats, Inc. is taxed as a C corporation for U.S. income tax purposes and is therefore subject to both federal and state taxation at a corporate level. The LLC continues to operate in the United States as a partnership for U.S. federal income tax purposes. Maverick Boat Group is separately subject to U.S. federal and state income tax with respect to its net taxable income.

Income taxes are computed in accordance with ASC Topic 740, Income Taxes, and reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. The Company has deferred tax assets and liabilities and maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized. To the extent the Company determines that it will not realize

the benefit of some or all of its deferred tax assets, such deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this determination is made.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was signed into law. The Inflation Reduction Act contains significant business tax provisions, including an excise tax on stock buybacks (1% for transactions beginning January 1, 2023), increased funding for IRS tax enforcement, expanded energy incentives promoting clean energy investment, and a 15% corporate minimum tax on certain large corporations. The effects of the new legislation were recognized upon enactment. The Company did not recognize any significant impact to income tax expense for the fiscal year ended June 30, 2023 relating to the Inflation Reduction Act.

The components of provision for income taxes are as follows:

	Fiscal Year Ended June 30,
	2023		2022		2021
Current tax expense:
Federal	$	39,462	$	33,689	$	21,737
State	9,071		6,632		4,014
Foreign	1,331		1,532		1,284
Total current	49,864		41,853		27,035
Deferred tax expense:
Federal	(14,230)		4,661		6,147
State	(2,019)		94		899
Foreign	(34)		(73)		(102)
Total deferred	(16,283)		4,682		6,944
Income tax expense	$	33,581	$	46,535	$	33,979

The income tax expense differs from the amount computed by applying the federal statutory income tax rate to income from continuing operations before income taxes. The sources and tax effects of the differences are as follows:

	Fiscal Year Ended June 30,
	2023		2022		2021
Federal tax provision at statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	3.5		2.8		2.9
Permanent differences attributable to partnership investment	(0.5)		(1.0)		(0.3)
Non-controlling interest	(0.5)		(0.6)		(0.7)
Other, net	0.2		—		—
Total income tax expense on continuing operations	23.7	%	22.2	%	22.9	%

The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiary operated as a limited liability company which was not subject to federal income tax. Accordingly, the portion of the Company’s subsidiary earnings attributable to the non-controlling interest are subject to tax when reported as a component of the non-controlling interests’ taxable income.

The components of the Company's net deferred income tax assets and liabilities at June 30, 2023 and 2022 are as follows:

	As of June 30,
	2023		2022
Deferred tax assets:
Partnership basis differences	$	69,193	$	49,740
Accrued liabilities and reserves	1,436		955
State tax credits and NOLs	8,922		7,178
Foreign tax credits	580		580
Other	381		336
Less valuation allowance	(16,876)		(15,633)
Total deferred tax assets	63,636		43,156
Deferred tax liabilities:
Fixed assets and intangibles	29,495		27,754
Other	21		53
Total deferred tax liabilities	29,516		27,807
Total net deferred tax assets	$	34,120	$	15,349

On an annual basis, the Company performs a comprehensive analysis of all forms of positive and negative evidence to determine whether realizability of deferred tax assets is more likely than not. During each interim period, the Company updates its annual analysis for significant changes in the positive and negative evidence. At June 30, 2023 and 2022, the Company concluded that $16,876 and $15,633, respectively, of valuation allowance against deferred tax assets was necessary. The Company continues to record the valuation allowance against the deferred tax asset generated by the state impact of the 743(b) amortization and on state net operating losses generated by current and future amortization deductions (with respect to the Section 754 election) that are reported in the Tennessee corporate tax return without offsetting income, which is taxable at the LLC. These net operating losses have a 15 year carryover and will expire, if unused, between 2030 and 2038. This also includes a valuation allowance in the amount of $580 related to foreign tax credit carryforward that is not expected to be utilized in the future.

Unrecognized tax benefits are discussed in the Company's accounting policy for income taxes (Refer to Note 1 on Income Taxes for more information). The Company has filed federal and state income tax returns that remain open to examination for fiscal years 2020 through 2022, while its subsidiaries, the LLC and Malibu Boats Pty Ltd., remain open to examination for fiscal years 2019 through 2022.

A reconciliation of changes in the amount of unrecognized tax benefits for the fiscal years ended June 30, 2023, 2022 and 2021 is as follows:

	Fiscal Year Ended June 30,
	2023		2022		2021
Balance as of July 1	$	1,472	$	1,452	$	1,445
Additions based on tax positions taken during the current period	363		314		304
Reductions for settlements with taxing authorities	—		—		(250)
Reductions due to statute settlements	(156)		(286)		(50)
Additions (reductions) for tax positions of prior years	39		(8)		3
Balance as of June 30	$	1,718	$	1,472	$	1,452

In fiscal year 2023, the Company reduced its uncertain tax positions by $156 as a result of statute settlements, and recorded $363 in connection with its current year state filing positions. As of June 30, 2023, it is reasonably possible that $130 of the total unrecognized tax benefits recorded will reverse within the next twelve months. Of the total unrecognized tax benefits recorded on the consolidated balance sheets, $1,423 would impact the effective tax rate once settled.

As discussed in Note 1 to the Consolidated Financial Statements, the Company's policy is to accrue interest related to potential underpayment of income taxes within the provision for income taxes. At June 30, 2023, the Company had $324 of accrued interest related to unrecognized tax benefits.

The Company did not provide for U.S. federal, state income taxes or foreign withholding taxes in fiscal year 2023 on the outside basis difference of its non-U.S. subsidiary, as such foreign earnings are considered to be permanently reinvested. The estimated income and withholding tax liability associated with the remittance of these earnings is nominal.