INCOME TAXES

12 Months Ended

Sep. 30, 2021

INCOME TAXES

INCOME TAXES

8.    INCOME TAXES

Significant components of our deferred tax assets and liabilities are as follows:

	As of September 30,
	2021		2020
Deferred tax assets:
Inventory	$	117	$	85
Accrued compensation and vacation		224		137
Accrued expenses and other		—		172
Domestic net operating loss carryforwards		5,277		3,580
Basis difference for intangible assets		—		457
Goodwill		138		—
Stock compensation expense		501		96
Business Interest Limitation		226		—
Leases		94		108
PPP loan expenses		—		1,276
Total deferred tax assets		6,577		5,911
Deferred tax liabilities:
Prepaid expenses		(126)		(143)
Accrued expenses and other		(926)		—
Basis difference for fixed assets		(2,077)		(211)
Basis difference for intangible assets		(2,841)		—
Goodwill		—		(141)
Total deferred tax liabilities		(5,970)		(495)
Total net deferred tax assets		607		5,416
Valuation allowance for net deferred tax assets		(951)		(5,557)
Net deferred tax liability	$	(344)	$	(141)

Significant components of the provision (benefit) for income taxes are as follows as of the years ended September 30, 2021 and 2020:

	2021		2020
Current:
Federal	$	—	$	(31)
State and local		7		6
Deferred:
Federal		(3,902)		143
State and local		(881)		29
Income tax (income) expense	$	(4,776)	$	147

The effective income tax rate on continuing operations varied from the statutory federal income tax rate as follows:

	2021		2020
Federal statutory income tax rate	21.0	%	21.0	%
Increases (decreases):
State and local income taxes, net of Federal tax benefit, if applicable	0.1	%	(0.1)	%
Other nondeductible expenses	(24.3)	%	1.3	%
Goodwill	3.3	%	(3.1)
Valuation allowance changes from activity	3.3	%	(22.3)	%
Valuation allowance changes from acquisitions	(81.4)		—
Effective income tax rate	(78.0)	%	(3.2)	%

The U.S. GAAP requires that valuation allowances should be established against deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard. The Company assess its deferred income taxes to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified. The Company’s U.S. tax reporting group has a cumulative three-year prior period loss. The reversal of a deferred tax liability cannot be determined or considered a source of income for valuation allowance purposes where an NOL in the reversal period is limited (“naked credit” deferred tax liability). Therefore, the result is a valuation allowance in excess of net deferred tax assets and a net credit balance. The valuation allowance in fiscal 2021 and 2020 was $951 and $5,557, respectively for the Company’s domestic operations, as the Company does not believe that these deferred tax assets will be realized in the foreseeable future. Payments made in fiscal 2021 and 2020 for income taxes amounted to $8 and $7, respectively.

At September 30, 2021, the Company had domestic net operating loss carryforwards for federal tax purposes of  $18,637, which expire from September 30, 2033 through 2036, however approximately $6,561 may be carried forward indefinitely. State and local loss carryforwards total approximately $28,512. The majority expire from September 30, 2023 through 2033; however, approximately $2,180 may be carried forward indefinitely, as they relate to states conforming to the provisions of the Tax Cuts and Jobs Act which allowed for an indefinite carryforward period of losses generated after December 31, 2017. As a result of the current year acquisitions, the Company has not yet completed an Internal Revenue Code Section 382 study regarding certain limitations on the future usage of net operating losses.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon regulatory examination based on the technical merits of the position. The amount of the benefit for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position. There have been no additional gross uncertain tax positions during fiscal 2021 based on any federal or state tax position.

The Company is no longer subject to U.S. Federal tax examinations for years before 2017 or state and local for years before 2016, with limited exceptions. For federal purposes, the tax attributes carried forward could be adjusted through the examination process and are subject to examination 3 years from the date of utilization.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, due to the coronavirus pandemic.  Among other things, the legislation provides tax relief for businesses.  The Company is still assessing the tax benefit, if any, that it could receive under this legislation. The Company received a PPP loan of $5,051 and applied for forgiveness of $4,851. The Company’s application for the forgiveness of the PPP loan in the amount of $4,851 was approved in July 2021.