Note 7 - Income Taxes

9 Months Ended

Jun. 30, 2015

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 7 - Income Taxes

Because a small change in ordinary income produces a significant change in the annual effective rate due to significant permanent book and tax differences, primarily for the dividends received deduction, it was impractical for the Company to compute a reliable estimate using the annual effective rate method. As such, the Company computed its estimate of income taxes on each component of taxable income; ordinary income, the dividends received deduction and other permanent book and tax differences, and recorded each in the period in which it occurred.

For the nine months ended June 30, 2015, the Company recorded an income tax benefit of $760,000 on pretax income of $210,000.

The effective tax rate was lower than the statutory rate primarily due to the dividends received deduction, the domestic production activity deduction and a discrete benefit of about $400,000 related to the California Enterprise Zone credits.  On pretax loss of $564,000 for the nine months ended June 30, 2014, the Company recorded a tax benefit of $15,000 which was the net result from applying the effective tax rate anticipated for fiscal 2014 to pretax loss for the first three quarters of fiscal 2014.

The Company’s effective tax rate was -362% and 3% for the nine months ended June 30, 2015 and 2014, respectively.  The Company files federal income tax returns in the United States and with various state jurisdictions and is no longer subject to examinations for fiscal years before fiscal 2011 with regard to federal income taxes and fiscal 2010 for state income taxes. 

At June 30, 2015, the Company had an

accrued liability of approximately $3,059,000 for uncertain and unrecognized tax benefits relating to an acquisition in fiscal 2013. The Company does not anticipate a significant increase or decrease in this liability in the next twelve months.   If recognized, it is expected that these unrecognized tax benefits would not have a significant impact on the Company’s effective tax rate.  During the nine months ended June 30, 2015, interest expense of approximately $70,000 was recorded as “interest and penalty expense accrued for uncertain and unrecognized tax benefits” in the statement of Comprehensive Income (Loss).