Income Taxes

12 Months Ended

Sep. 30, 2019

4. INCOME TAXES

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

	2019			2018			2017
Current:
Federal	$	(1,388,000	)	$	204,000		$	314,000
State		19,000			20,000			-
		(1,369,000	)		224,000			314,000
Deferred:
Federal		(9,763,000	)		(13,240,000	)		390,000
State		(2,349,000	)		277,000			(15,000	)
		(12,112,000	)		(12,963,000	)		375,000
	$	(13,481,000	)	$	(12,739,000	)	$	689,000

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:

	2019			2018			2017
Provision (benefit) for income taxes at statutory rate	$	(11,387,447	)	$	465,253		$	1,477,327
Percentage depletion		(431,340	)		(577,780	)		(570,801	)
State income taxes, net of federal provision (benefit)		(1,986,850	)		36,980			3,900
Effect of graduated rates		-			-			85,644
Restricted stock tax benefit		185,000			(69,000	)		(238,000	)
Deferred directors compensation benefit		(38,000	)		(134,000	)		(79,000	)
Law change (a)		-			(12,464,000	)		-
Other		177,637			3,547			9,930
	$	(13,481,000	)	$	(12,739,000	)	$	689,000

(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:

	2019		2018
Deferred tax liabilities:
Financial basis in excess of tax basis, principally intangible drilling costs capitalized for financial purposes and expensed for tax purposes	$	8,885,776	$	23,885,522
Derivative contracts		619,392		-
		9,505,168		23,885,522
Deferred tax assets:
State net operating loss carry forwards		431,977		551,435
AMT credit carry forwards		1,387,042		2,936,457
Asset retirement obligations		459,810		420,761
Deferred directors' compensation		602,394		693,592
Restricted stock expense		119,697		238,477
Derivative contracts		-		839,573
Business interest limitation		358,110		-
Other		170,131		117,220
		3,529,161		5,797,515
Net deferred tax liabilities	$	5,976,007	$	18,088,007

Included in state net operating loss carry forwards at September 30, 2019, the Company had a deferred tax asset of $381,906 related to Oklahoma state income tax net operating loss (OK NOL) carry forwards expiring in 2037. There is no valuation allowance for the OK NOLs, 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.

The Company also had a deferred asset of $358,110 related to business interest limitations. This deferred asset does not expire and the Company does not have a valuation allowance for this asset, as we believe that it will be utilized in the future.