Income Taxes

12 Months Ended

Mar. 31, 2012

Notes to Financial Statements [Abstract]

7. Income Taxes

Mexco and its subsidiaries file a consolidated federal income tax return and various state income tax returns.  The amount of income taxes we record requires the interpretation of complex rules and regulations of federal and state taxing jurisdictions.  With few exceptions, Mexco is no longer subject to U.S. federal and state income tax examinations by tax authorities for years prior to 2007.

Significant components of net deferred tax assets (liabilities) at March 31 are as follows:

	2012			2011			2010
Deferred tax assets:
Percentage depletion carryforwards	$	1,336,630		$	1,180,896		$	1,124,820
Deferred stock-based compensation		13,844			2,872			7,536
Asset retirement obligation		205,616			179,462			166,255
Net operating loss		171,411			125,848			-
Other		3,695			6,200			7,311
		1,731,196			1,495,278			1,305,922
Deferred tax liabilities:
Excess financial accounting bases over tax bases of property and equipment		(2,615,899	)		(2,407,941	)		(2,208,679	)
Net deferred tax liabilities	$	(884,703	)	$	(912,663	)	$	(902,757	)

As of March 31, 2012, we have a statutory depletion carryforward of approximately $4,312,000, which does not expire.  At March 31, 2012, we had a net operating loss carryforward for regular income tax reporting purposes of approximately $2,736,000, which will begin expiring in 2021.  Our ability to use some of our net operating loss carryforwards and certain other tax attributes to reduce current and future U.S. federal taxable income is subject to limitations under the Internal Revenue Code.

For the year ended March 31, 2012, there was a deferred income tax benefit of $27,960.  There was no current income tax for the year ended March 31, 2012.  For the year ended March 31, 2011, there was a current income tax benefit of $25,502 and a deferred income tax expense of $9,906.  For the year ended March 31, 2010, current income tax expense was $25,502 and deferred income tax was a benefit of $282,737.

A reconciliation of the provision for income taxes to income taxes computed using the federal statutory rate for years ended March 31 follows:

	2012			2011			2010
Tax expense at federal statutory rate (1)	$	102,691		$	47,634		$	48,825
Statutory depletion carryforward		(155,734	)		(86,221	)		(127,253	)
Effect of graduated rates		(16,940	)		(3,074	)		1,271
Revision of prior year estimates		4,314			44,503			(171,736	)
Permanent differences		30,210			(17,309	)		5,319
Other		7,499			(1,129	)		(13,661	)
Total income tax benefit	$	(27,960	)	$	(15,596	)	$	(257,235	)
Effective income tax rate		(9	%)		(11	%)		(179	%)

(1)           The federal statutory rate was 34% for fiscal years ending March 31, 2012, 2011 and 2010.

For the years ended March 31, 2012, 2011 and 2010, we did not have any uncertain tax positions.

For the years ended March 31, 2012, 2011 and 2010, the amount of unrecognized tax benefits was approximately $677,000, $670,000 and $524,000, respectively.  While it is expected the amount of unrecognized tax benefits will change in the next 12 months, we do not expect any change to have a significant impact on our results of operations.  The recognition of the total amount of the unrecognized tax benefits of $677,000 would have an impact on the effective tax rate.  If these unrecognized tax benefits are disallowed, we will be required to pay additional taxes.

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:

	2012		2011		2010
Unrecognized tax benefits at beginning of period	$	670,000	$	524,000	$	549,000
Additions based on tax positions related to the current year		-		146,000		-
Changes to tax positions of prior years		7,000		-		-
Settlements		-		-		25,000
Expirations		-		-		-
Unrecognized tax benefits at end of period	$	677,000	$	670,000	$	524,000