Income Taxes

12 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

4. INCOME TAXES

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

	2020			2019			2018
Current:
Federal	$	(3,642,000	)	$	(1,388,000	)	$	204,000
State		-			19,000			20,000
		(3,642,000	)		(1,369,000	)		224,000
Deferred:
Federal		(3,611,000	)		(9,763,000	)		(13,240,000	)
State		(1,036,000	)		(2,349,000	)		277,000
		(4,647,000	)		(12,112,000	)		(12,963,000	)
	$	(8,289,000	)	$	(13,481,000	)	$	(12,739,000	)

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:

	2020			2019			2018
Provision (benefit) for income taxes at statutory rate	$	(6,765,705	)	$	(11,387,447	)	$	465,253
Percentage depletion		(258,300	)		(431,340	)		(577,780	)
State income taxes, net of federal provision (benefit)		(939,310	)		(1,986,850	)		36,980
Effect of NOL Carryback Rate		(610,803	)		-			-
State NOL Valuation Allowance		96,000			-			-
Restricted stock tax benefit		58,000			185,000			(69,000	)
Deferred directors’ compensation benefit		79,000			(38,000	)		(134,000	)
Law change (a)		-			-			(12,464,000	)
Other		52,118			177,637			3,547
	$	(8,289,000	)	$	(13,481,000	)	$	(12,739,000	)

(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:

	2020		2019
Deferred tax liabilities:
Financial basis in excess of tax basis, principally intangible    drilling costs capitalized for financial purposes and    expensed for tax purposes	$	3,880,307	$	8,885,776
Derivative contracts		-		619,392
		3,880,307		9,505,168
Deferred tax assets:
State net operating loss carry forwards, net of valuation allowance		391,193		431,977
Federal net operating loss carry forwards		369,523		-
Statutory depletion carryover		346,414		85,680
AMT credit carry forwards		-		1,387,042
Asset retirement obligations		499,708		459,810
Deferred directors' compensation		436,225		602,394
Restricted stock expense		220,301		119,697
Derivative contracts		176,963		-
Business interest limitation		-		358,110
Other		110,973		84,451
		2,551,300		3,529,161
Net deferred tax liabilities	$	1,329,007	$	5,976,007

Included in state net operating loss carry forwards at September 30, 2020, the Company had a deferred tax asset of $350,543 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 Company had a deferred tax asset of $95,611 related to Arkansas state income tax net operating loss (AR NOL) carry forwards, which begin to expire in 2022. The Company has a full valuation allowance for the AR NOLs, as it is more likely than not that these will not be utilized before expiration. There is no valuation allowance for the federal NOLs, nor do they expire.

The federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020. The CARES Act provides relief to corporate taxpayers by permitting a five-year carryback of 2018-2020 Net Operating Losses (“NOLs”), removing the 80% limitation on the carryback of those NOLs, increasing the Section 163(j) 30% limitation on interest expense deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerates refunds for minimum tax credit carryforwards, along with a few other provisions. On July 28, 2020, final regulations were issued under Section 163(j) which modified the calculation under the previous proposed regulations of adjusted taxable income for purposes of the 50% limitation on interest expense. Under the final regulations, depreciation, amortization, and depletion capitalizable under Section 263A is now added back to tentative taxable income.  This change allows all interest expense to be deductible for 2020 and reduces the associated deferred tax asset to zero. During the quarter ended June 30, 2020, the Company filed for a tax refund associated with the AMT credits totaling $1.4 million, which was accelerated due to the CARES Act. Additionally, the Company has a $2.2 million receivable associated with the carryback of the 2020 federal net operating loss.