Income Taxes

12 Months Ended

Sep. 30, 2018

3. INCOME TAXES

The Company’s provision (benefit) for income taxes is detailed as follows:

	2018			2017			2016
Current:
Federal	$	204,000		$	314,000		$	2,166,000
State		20,000			-			83,000
		224,000			314,000			2,249,000
Deferred:
Federal		(13,240,000	)		390,000			(8,597,000	)
State		277,000			(15,000	)		(1,363,000	)
		(12,963,000	)		375,000			(9,960,000	)
	$	(12,739,000	)	$	689,000		$	(7,711,000	)

The difference between the provision (benefit) for income taxes and the amount which would result from the application of the federal statutory rate to income before provision (benefit) for income taxes is analyzed below for the years ended September 30:

	2018			2017			2016
Provision (benefit) for income taxes at statutory rate	$	465,253		$	1,477,327		$	(6,299,259	)
Percentage depletion		(577,780	)		(570,801	)		(395,649	)
State income taxes, net of federal provision (benefit)		36,980			3,900			(683,800	)
Effect of graduated rates		-			85,644			(86,745	)
Restricted stock tax benefit		(69,000	)		(238,000	)		-
Deferred directors compensation benefit		(134,000	)		(79,000	)		-
Law change (a)		(12,464,000	)		-			-
Other		3,547			9,930			(245,547	)
	$	(12,739,000	)	$	689,000		$	(7,711,000	)

(a)

This is the tax effect of the Tax Cuts and Jobs Act (enacted in December 2017) on our deferred tax liabilities. This Act reduced the U.S. federal corporate tax rate from 35% to 21%.

Deferred tax assets and liabilities, resulting from differences between the financial statement carrying amounts and the tax basis of assets and liabilities, consist of the following at September 30:

	2018		2017
Deferred tax liabilities:
Financial basis in excess of tax basis, principally intangible drilling costs capitalized for financial purposes and expensed for tax purposes	$	24,560,165	$	38,185,387
Derivative contracts		-		200,786
		24,560,165		38,386,173
Deferred tax assets:
State net operating loss carry forwards		551,435		655,741
AMT credit carry forwards		2,936,457		3,499,320
Deferred directors' compensation		725,971		1,295,333
Restricted stock expense		249,610		411,019
Derivative contracts		878,767		-
Statutory depletion carry forwards		-		634,405
Other		1,129,918		839,348
		6,472,158		7,335,166
Net deferred tax liabilities	$	18,088,007	$	31,051,007

At September 30, 2018, the Company had a deferred tax asset of $497,752 related to Oklahoma state income tax net operating loss (OK NOL) carry forwards expiring from 2031 to 2037. There is no valuation allowance for the OK NOL’s, as management believes they will be utilized before they expire.

The AMT carry forwards do not have an expiration date. The corporate alternative minimum tax was repealed by The Tax Cuts and Jobs Act (enacted on December 22, 2017). Taxpayers with AMT credit carryovers can use the credits to offset regular tax liability for any taxable year. In addition, the AMT credit is refundable in any taxable year beginning after 2017 and before 2022 in an amount equal to 50% (100% in the case of taxable years beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability. Thus, the Company’s entire AMT credit carryforward amounts are fully refundable by 2023.