Income Taxes

12 Months Ended

Apr. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense consisted of the following: 

	Years ended April 30,
	2023		2022		2021
	(in thousands)
Current:
Federal	$	5,205	$	1,294	$	693
State	1,352		615		386
	6,557		1,909		1,079
Deferred:
Federal	(3,666)		(712)		(238)
State	(426)		(142)		(82)
	(4,092)		(854)		(320)
	$	2,465	$	1,055	$	759

The Company’s actual income tax expense differs from the “expected” income tax expense calculated by applying the Federal statutory rate of 21.0% for fiscal 2023, 2022 and 2021, to earnings before income taxes as follows:

	Years ended April 30,
	2023		2022		2021
	(in thousands)
Computed “expected” income tax expense	$	2,691	$	2,905	$	1,858
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax effect	601		396		323
Research and development credits	(586)		(522)		(640)
Excess tax benefits from stock option deductions	(70)		(1,737)		(641)
Foreign tax credits	(37)		(44)		(1)
Other, net, including permanent items	(134)		57		(140)
	$	2,465	$	1,055	$	759

Our effective income tax rates were 19.1%, 7.6% and 8.6%, in fiscal 2023, 2022 and 2021, respectively. Our effective income tax rate takes into account the source of taxable income, by state and available income tax credits. The provision for income taxes in fiscal 2023, 2022 and 2021, includes approximately $83,000, $2,067,000 and $763,000, respectively, in income tax benefits related to the tax benefits realized from stock option deductions.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at April 30, 2023 and 2022 are presented as follows:

	2023		2022
	(in thousands)
Deferred tax assets:
Accruals and expenses not deducted for tax purposes	$	234	$	473
IRS Section 174 costs	3,651		—
State net operating loss carryforwards	13		49
Fixed asset basis differences	516		823
Nonqualified stock options	2,676		1,740
Foreign net operating loss carryforwards	2,860		3,873
Right of use liability	117		251
Tax credit carryforwards	83		83
Total gross deferred tax assets	10,150		7,292
Less valuation allowance	(2,861)		(3,891)
Net deferred tax	7,289		3,401
Deferred tax liabilities:
Capitalized computer software development costs	(96)		(396)
Net gains/losses on trading securities	(2,160)		(1,993)
Goodwill and intangible assets basis differences	(1,705)		(1,399)
Right of use asset	(108)		(234)
Deferred agent commissions	(900)		(1,151)
Total gross deferred tax liabilities	(4,969)		(5,173)
Net deferred tax assets (liabilities)	$	2,320	$	(1,772)

At April 30, 2023, the Company had approximately $0.4 million of various state net operating loss carryforwards which are available to offset future state taxable income, if any, through 2038. The Company has foreign branch operations in the United Kingdom and New Zealand. The branches have incurred losses since inception dating back to 2003. The losses have been utilized in the US federal jurisdiction, but have not been utilized in the respective jurisdictions. At April 30, 2023, the Company had approximately $12.6 million of net operating loss carryforwards in these foreign jurisdictions, which are indefinitely available to offset future taxable income. As a result, the Company has recorded a deferred tax asset of $2.5 million related to these losses. Furthermore, the Company does not believe it will realize the benefit of these foreign net operating loss carryforwards and therefore, has established a full valuation allowance associated with this deferred tax asset.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon reversal of deferred tax liabilities and expected future profitability, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances, at April 30, 2023.

The Company applies the accounting provisions which require us to prescribe a recognition threshold and measurement attribution for the financial statement recognition and measurement of a tax position taken or expected to be taken within an income tax return. The Company’s recorded unrecognized tax benefits, inclusive of interest and penalties, was immaterial for each of the years ended April 30, 2023, 2022 and 2021.

We recognize potential accrued interest and penalties related to unrecognized tax benefits within income tax expense. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. The Company’s liability for potential penalties and interest related to uncertain tax positions was immaterial at April 30, 2023 and 2022.

We conduct business globally and, as a result, file consolidated income tax returns in the United States federal jurisdiction and in many state and foreign jurisdictions. We are no longer subject to state and local, or non–U.S. income tax examinations for years prior to 2004. We are no longer subject to U.S. federal income tax examination for years prior to 2018.

During the years ended April 30, 2023, 2022 and 2021 we recorded research and development state tax credits against payroll taxes of approximately $470,000, $561,000 and $555,000, respectively, which reduced general and administrative expenses by the same amount.