INCOME TAXES

12 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 9—INCOME TAXES

Provision for income taxes during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Income Tax Provision	September 30, 2020		September 30, 2019
(in thousands)
Current tax:
State	$	146	$	116
Federal	(517)		(517)
Deferred tax:
State	(49)		17
Federal	2,340		1,471
Valuation allowance	23		89
Provision for income taxes	$	1,943	$	1,176

Differences between the federal statutory rate and IEC’s effective tax rates for fiscal 2020 and fiscal 2019 are explained by the following reconciliation.

	Years Ended
Taxes as Percent of Pretax Income	September 30, 2020		September 30, 2019
Federal statutory rate	21.0	%	21.0	%
Increase in valuation allowance	0.3		1.5
Deferred tax adjustment	—		0.5
State income taxes, net of federal benefit	2.8		1.8
Stock-based compensation	(0.5)		0.3
Research and development credit	(1.4)		(5.4)
Non-deductible expenses	0.1		0.2
Income tax provision as percent of pretax income	22.3	%	19.9	%

The following table displays deferred tax assets by category:

	As of
Deferred Tax Assets/(Liabilities)	September 30, 2020		September 30, 2019
(in thousands)
Deferred tax assets/(liabilities):
Federal and state net operating loss carryforward	$	3,194	$	4,945
Alternative minimum tax credit carryforward	—		517
Depreciation and fixed assets	(213)		268
New York State investment tax and other credits	1,419		1,396
Inventories	876		476
Deferred gain on sale-leaseback	466		452
Research and development credit	440		319
Section 481(a) adjustment	(64)		(96)
Other	141		273
Total deferred tax asset before allowance	6,259		8,550
Valuation allowance	(1,419)		(1,396)
Deferred tax assets, net	$	4,840	$	7,154

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. The Company has assessed the provisions of the CARES Act and determined that there were no material tax impacts to the consolidated financial statements for the fiscal year ended September 30, 2020.

The CARES Act includes a provision which accelerates the refund of alternative minimum tax (“AMT”) credits to allow a full utilization or refund of the remaining credits beginning in tax year 2019, with the option to elect to claim the refund in tax year 2018. In the prior fiscal year, as the Company expected to have net operating loss carryforward to offset its 2019 taxable income in full, the AMT credit was expected to be refundable in full. As such, the Company elected to claim the remaining AMT refund in full in the 2018 tax year and thus reclassified the remaining portion of its AMT credit from deferred income tax to federal income tax receivable in the consolidated balance sheet. As of September 30, 2020, the refund has been received in full and thus the federal income tax receivable balance is zero.

As of September 30, 2020, the Company’s deferred tax assets were primarily the result of U.S. federal net operating loss carryforwards (“NOLs”) and New York State tax credit carryforwards. A valuation allowance of $1.4 million was recorded against the Company's gross deferred tax asset balance as of September 30, 2020 and 2019.

IEC has federal NOLs for income tax purposes of approximately $15.2 million at September 30, 2020, expiring in tax year 2034. The Company also has an additional state NOL available of $0.1 million in one jurisdiction in which it files.

New York state corporate tax reform has resulted in the reduction of the business income base rate for qualified manufacturers in New York State to 0% beginning in fiscal 2016 for IEC. At September 30, 2020, the Company has $1.4 million of New York State investment tax and other credit carryforwards, expiring in various years through 2032. The credits cannot be utilized unless the New York state tax rate is no longer 0%, and as such, the Company has recorded a valuation allowance against the full amount of these credit carryforwards (net of the federal benefit).