20.	INCOME TAXES

The components of income tax expense (benefit) were as follows:

	Years Ended March 31,
	2019			2018
Current:
Federal	$	2,225,000		$	(133,000	)
State		418,000			183,000
Foreign		23,000			156,000
Total current		2,666,000			206,000
Deferred:
Federal		(1,105,000	)		(14,000	)
State		(58,816	)		3,000
Total deferred		(1,163,816	)		(11,000	)

Total	$	1,502,184		$	195,000

Income tax expense was different from the amount computed by applying the statutory federal income tax rate of

21%

and

30.8%

for fiscal years ended

March 31, 2019

and

March 31, 2018

each respectively as shown in the following table:

	Year Ended March 31,
	2019					2018
Expected Federal income tax expense U.S. statutory rate	$	978,000		21.0	%	$	818,000		30.8	%
State income taxes, net of federal benefit		171,000		3.7	%		129,000		4.9	%
Permanent differences, other		(61,000	)	-1.3	%		21,000		0.8	%
Micro-captive insurance benefit		(197,000	)	-4.2	%		(320,000	)	-12.1	%
Change in valuation allowance		1,405,000		30.2	%		(1,116,000	)	-42.1	%
Domestic production activities deduction		-		0.0	%		(15,000	)	-0.6	%
Income attributable to minority interest - Contrail Aviation		(434,000	)	-9.3	%		(79,000	)	-3.0	%
Bargain purchase gain		(417,000	)	-9.0	%		(155,000	)	-5.8	%
Tax rate change applied to deferreds		-		0.0	%		2,297,000		86.6	%
Deferred benefit for outside basis difference recorded on Delphax CFCs		31,000		0.7	%		(811,000	)	-30.6	%
Deferred benefit for increase in Canadian tax credits for Delphax		-		0.0	%		(149,000	)	-5.6	%
Recognition of AMT tax credits as tax receivable		-		0.0	%		(311,000	)	-11.7	%
Other differences, net		26,184		0.6	%		(114,000	)	-4.3	%

Income tax expense	$	1,502,184		32.4	%	$	195,000		7.3	%

Delphax Solutions and Delphax Technologies, which generated losses for the periods ending

March 31, 2019

and

March 31, 2018

not

included in Air T, Inc.’s consolidated tax return and accounts for

$383,000

and

$973,000

of the above valuation allowance effect for each year, respectively. There is a separate return filed for Delphax Solutions and Delphax Technologies for the periods ending

March 31, 2019

and

March 31, 2018.

Impairment on investment and changes in unrealized losses related to available-for-sale securities accounted for the remaining valuation allowance effect for each year. Deferred tax assets and liabilities consisted of the following as of

March 31:

	2019			2018

Accrued vacation	$	322,000		$	343,000
Property and equipment		-			264,000
Accounts and notes receivable reserve		115,000			103,000
Employee severance reserve		-			549,000
Net operating loss carryforwards		7,516,000			6,083,000
Federal/Canadian tax credits		4,486,000			4,486,000
Unrealized gains/losses		833,000			2,324,000
Outside basis difference on CFCs		1,431,000			-
Investments in partnerships		534,000			-
Disallowed capital loss		463,000			-
Other deferred tax assets		301,000			236,000
Total deferred tax assets		16,001,000			14,388,000

Prepaid expenses		(115,000	)		(337,000	)
263A inventory capitalization		-			(28,000	)
Inventory basis difference		(434,000	)		(179,000	)
Property and equipment		(233,000	)		-
Investments in partnerships		-			(270,000	)
Other deferred tax liabilities		(83,000	)		(83,000	)
Total deferred tax liabilities		(865,000	)		(897,000	)

Net deferred tax asset	$	15,136,000		$	13,491,000

Less valuation allowance		(14,658,000	)		(13,583,000	)

Net deferred tax asset (liability)	$	478,000		$	(92,000	)

Delphax

As described in Note

11,

effective on

November 24, 2015,

Air T, Inc. purchased interests in Delphax. With an equity investment level by the Company of approximately

38%,

Delphax is required to continue filing a separate United States corporate tax return. Furthermore, Delphax has

three

foreign subsidiaries located in Canada, France, and the United Kingdom which file tax returns in those jurisdictions. With few exceptions, Delphax is

longer subject to examinations by income tax authorities for tax years before

2014.

Delphax maintains a

September 30

fiscal year. The returns for the fiscal year ended

September 30, 2018

have

not

yet been filed. Included in the deferred tax balances above and related to Delphax and its subsidiaries are estimated foreign and domestic tax loss carryforwards of

$13.4

million and

$15.2

million, respectively as well as foreign research and development credit carryforwards of

$4.5

million, which are available to offset future income tax. The credits and net operating losses expire in varying amounts beginning in the year

2023.

The TCJA repealed the corporate alternative minimum tax and made any minimum tax credit carryforwards to the extent

not

utilized refundable for tax years beginning after

December 31, 2017.

As a result, Delphax will be able to receive a refund of its minimum tax credit carryforward of

$311,000

beginning in their fiscal year ended

September 30, 2019.

Previously, a valuation allowance was established against the minimum tax credit carryforward. As a result of the TCJA relating to the refundability of the minimum tax credit carryforward, an income tax benefit was recognized by the Company during the prior period and a long-term income tax receivable was established. Should there be an ownership change for purposes of Section

382

or any equivalent foreign tax rules, the utilization of the previously mentioned carryforwards

may

be significantly limited. Furthermore, Delphax is currently undergoing bankruptcy proceedings with their Canadian entity (see Note

) and intends to liquidate both the United Kingdom and French entities as well. The Company anticipates those proceedings will be completed within the next fiscal year. Upon completion, any remaining tax attributes, including net operating losses and credit carryforwards in each respective jurisdiction will be lost. The Company has recorded an outside basis difference in the stock of these entities of

$6.4

million, which is the estimated loss that will be recognized in the United States upon their liquidation. See additional information regarding Delphax Canada in Note

11.

The provisions of ASC

740

require an assessment of both positive and negative evidence when determining whether it is more likely than

not

that deferred tax assets will be recovered. In accounting for the Delphax tax attributes, the Company has established a full valuation allowance of

$13.0

million at

March 31, 2019

and

$13.0

million at

March 31, 2018.

The cumulative losses incurred by Delphax in recent years was the primary basis for the Company’s determination that a full valuation allowance should be established against Delphax’s net deferred tax assets.