Note 3 - Income Taxes

12 Months Ended

Sep. 30, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

3. INCOME TAXES

The provision for income taxes consists of the following:

	2013			2012
Current:
Federal	$	1,011,000		$	1,840,000
State		(228,000	)		781,000
		783,000			2,621,000
Deferred:
Federal		(30,000	)		(223,000	)
State		37,000			(38,000	)
		7,000			(261,000	)
	$	790,000		$	2,360,000

The difference between the statutory federal income tax rate and the Company’s effective rate is summarized below:

	2013			2012
Statutory federal income tax rate		34.0	%		34.0	%
State franchise taxes (net of federal tax benefit)		5.0			5.8
Effect of state rate change on beginning balance of deferred tax liabilities		(9.4	)		—
Reversal of liability for uncertain tax position		—			(3.6	)
Other, primarily dividends received deduction and domestic production activity deduction		(12.3	)		(6.4	)
Effective tax rate		17.3	%		29.8	%

At September 30, 2013, the Company’s deferred income tax assets and liabilities were comprised of the following:

	2013			2012
Deferred tax assets attributable to:
Accrued liabilities, including supplemental Compensation and vacation pay accrual	$	1,083,000		$	1,817,000
Impairment losses on investments		1,778,000			1,135,000
Bad debt reserves not yet deductible		78,000			80,000
Depreciation and amortization		356,000			49,000
Other		41,000			262,000
Total deferred tax assets		3,336,000			3,343,000
Deferred tax liabilities attributable to:
Unrealized gains on investments		(34,610,000	)		(20,898,000	)
Net deferred income taxes	$	(31,274,000	)	$	(17,555,000	)

Based on the Company’s assessment of the future realizability of its deferred assets, including the consideration of historical levels of income, expectations and risks associated with estimates of future taxable income, no valuation allowance was recorded as of September 30, 2013 and 2012.

  On a pretax profit of $4,569,000 and $7,901,000 for the fiscal years ended September 30, 2013 and 2012, respectively, the Company recorded a tax provision of $790,000 and $2,360,000 respectively, which was lower in each case than the amount computed using the statutory rate because of the available dividends received deduction, the domestic production activity deduction and a change this year in California franchise taxes regarding revenue allocation among states resulting in a lower California tax rate which reduced the current year’s tax rate and prior years’ deferred taxes on the unrealized appreciation of the Company’s investments by $500,000. In fiscal 2012, there was a reversal of an uncertain tax liability as the Company reached an agreement with the Internal Revenue Service in March 2012 to settle the Company’s previously claimed research and development credits in its tax returns for the years 2002 to 2007. Consequently, the Company’s effective tax rate was 17% and 30% for fiscal 2013 and 2012, respectively.

The acquisition of New Dawn was structured as a stock acquisition with an Internal Revenue Code Section 338(h)(10) election, which results in the acquisition being treated as an acquisition of assets for income tax purposes. The ISD acquisition was structured as an asset purchase. As such, the amounts allocated to purchased software and customer relationships as well as goodwill are amortized over a 15-year period on a straight-line basis for tax purposes. Differences in the amortization period and methods between book and tax useful lives will result in deferred tax assets or liabilities. The Company files federal income tax returns in the United States and with various state jurisdictions and is no longer subject to examinations for years before 2010 with regard to federal income taxes. At September 30, 2013, there was no unrecognized tax liability for the uncertain tax positions that were settled with the Internal Revenue Service.