Income Taxes

12 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 6 - INCOME TAXES

The provision for income tax expense consists of:

	Year Ended September 30,
	2020			2019
Current:
Federal	$	3,430,000		$	2,297,000
State		346,000			148,000
Total current		3,776,000			2,445,000
Deferred:
Federal		(2,436,000	)		52,000
State		(190,000	)		131,000
Total deferred		(2,626,000	)		183,000
Income tax expense	$	1,150,000		$	2,628,000

A reconciliation of the federal statutory tax rate to the total tax provision is as follows:

	Year Ended September 30,
	2020			2019
Federal income taxes computed at the statutory rate		21.0	%		21.0	%
State income taxes, net of federal benefit		1.3	%		1.6	%
Research & development tax refunds & credits		(6.3	%)		(1.9	%)
Dividend received deduction		(1.2	%)		(0.6	%)
263A Section 481(a) adjustment		1.5	%		—
Other, net		0.9	%		0.4	%
Effective income tax rate		17.2	%		20.5	%

Deferred income tax assets and liabilities consist of the following:

	September 30,
	2020			2019
Deferred Tax Assets:
Accrued liabilities and reserves	$	340,000		$	344,000
Allowance for doubtful accounts		98,000			104,000
Inventory		369,000			98,000
Stock-based compensation		81,000			82,000
Net operating losses carryforwards		5,000			7,000
Gross Deferred Income Tax Assets		893,000			635,000
Deferred and Other Tax Liabilities:
Domestic international sales corporation		(329,000	)		(464,000	)
Percentage of completion		—			(2,048,000	)
Property and equipment		(1,158,000	)		(1,080,000	)
Unrealized gain on investments		(2,000	)		(265,000	)
Unrecognized tax benefits		(150,000	)		(150,000	)
Gross Deferred and Other Income Tax Liabilities		(1,639,000	)		(4,007,000	)
Net Deferred and Other Income Tax Assets (Liabilities)	$	(746,000	)	$	(3,372,000	)

Total income taxes paid in fiscal 2020 and 2019 were $3,850,000 and $1,150,000, respectively. The fiscal 2020 income taxes paid includes $2,050,000 of tax payments due on the filing of the Company’s Form 3115 with the Internal Revenue Service to reflect the revenue recognition method change to the percentage of completion method for tax purposes pursuant to Internal Revenue Code Sections 460 and 451(b).

GAAP prescribes a comprehensive model for the financial recognition, measurement, classification, and disclosure of uncertain tax positions. GAAP contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, based on the technical merits of the position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Significant judgment is required in evaluating the Company’s uncertain tax position and determining the Company’s provision for taxes. Although the Company believes the reserves of unrecognized tax benefits (“UTB’s”) are reasonable, no assurance can be given that the final outcome of these matters will not be different from that which is reflected in the Company’s historical income tax provision and accruals. The Company adjusts these reserves in light of changing facts and circumstances. As of September 30, 2020 and 2019, the Company had UTB’s of $150,000. There were no additional accruals of UTB’s during fiscal years ended September 30, 2020 and 2019.

The Company recognizes interest and penalties accrued related to UTB’s as a component of income tax expense. There were no additional accruals of interest expense nor penalties during fiscal years ended September 30, 2020 and 2019. It is reasonably possible that the amount of the UTB’s with respect to certain unrecognized tax positions will increase or decrease during the next 12 months. The Company does not expect the change to have a material effect on its results of operations or its financial position. The only expected potential reason for change would be the ultimate results stemming from any examinations by taxing authorities. If recognized, the entire amount of UTB’s would have an impact on the Company’s effective income tax rate. 

The effective income tax rate for fiscal 2020 was 17.2% versus 20.5% in fiscal 2019.

In fiscal 2019, the Company generated $241,000 of federal research and development credits (“R&D Credits”), all of which were used. In fiscal 2020, the Company generated $421,000 of R&D Credits, all of which were used. There were no R&D Credits carryforwards as of September 30, 2020.

As of September 30, 2018, the Company had $87,000 in Florida state research and development tax credits (“Florida R&D Credits”) carryforwards. The Company did not receive any additional Florida R&D Credits in fiscal 2020 or fiscal 2019. The Company used the $87,000 of Florida R&D Credits carryforwards from fiscal 2018 in fiscal 2019. There were no Florida R&D Credits carryforwards at September 30, 2020.

The Company files U.S. federal income tax returns, as well as Florida and Iowa income tax returns. The Company’s U.S. federal income tax returns filed for tax years prior to fiscal year ended September 30, 2017 are generally no longer subject to examination by taxing authorities due to the expiration of the statute of limitations.