Note 3 - Income Taxes

12 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

3. INCOME TAXES

The provision (benefit) from income taxes consists of the following:

	2021		2020
Current:
Federal	$	5,420,000	$	(420,000	)
State		2,835,000		15,000
		8,255,000		(405,000	)
Deferred:
Federal		24,385,000		808,000
State		7,510,000		(218,000	)
		31,895,000		590,000
	$	40,150,000	$	185,000

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

	2021			2020
Statutory federal income tax rate		21.0	%		21.0	%
State franchise taxes (net of federal tax benefit)		5.2			5.6
Effect of state rate change on beginning balance of deferred tax liabilities		0.1			(9.4	)
Business meals/gifts/other permanent differences		---			0.6
Dividends received deduction		(0.2	)		(11.1	)
Revenue recognized for book but not tax		---			0.4
Foreign tax credits		---			(0.4	)
CARES Act benefits		---			(4.4	)
Others		0.1			2.1
Effective tax rate		26.2	%		4.4	%

The Company’s deferred income tax assets and liabilities were comprised of the following:

	2021			2020
Deferred tax assets attributable to:
Accrued liabilities, including supplemental compensation and vacation pay accrual	$	1,603,000		$	415,000
Impairment losses on marketable securities		113,000			1,016,000
Bad debt reserves not yet deductible		55,000			55,000
Depreciation and amortization		3,065,000			3,482,000
Deferred revenues		1,836,000			913,000
Goodwill		520,000			590,000
Net operating losses		561,000			4,768,000
Credits and other		268,000			432,000
Total deferred tax assets		8,021,000			11,671,000
Deferred tax liabilities attributable to:
Unrealized gains on marketable securities		(64,115,000	)		(35,870,000	)
Net deferred income taxes	$	(56,094,000	)	$	(24,199,000	)

For fiscal 2021, the Company recorded a provision for income taxes of $40,150,000 on pretax income of $153,050,000.   The effective rate of 26% was higher than the statutory rate of 21% primarily due to the recording of (i) state taxes, which were offset by the dividends received deduction, resulting in a tax provision of $1,260,000 on pretax income before the unrealized and realized gains on marketable securities, (ii) a tax provision of $27,938,000 on the unrealized gains on marketable securities and (iii) a tax provision of $10,952,000 on the realized gains on marketable securities.  

For fiscal 2020, the Company recorded an income tax provision of $185,000 on pretax income of $4,226,000.  The effective tax rate was less than the statutory rate primarily due to the DRD, a benefit resulting from the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and net state tax benefits.   The effective tax rate for fiscal 2020 was 4.4%, after including the DRD, the tax benefits from the CARES Act and state taxes.

The CARES Act, which was signed into law on March 27, 2020, contained two federal tax provisions beneficial to the Company: (i) net operating losses arising in tax years beginning in 2018, that were previously only available to be carried forward, were allowed to be carried back to the five previous years, and (ii) any alternative minimum tax credits carried forward from prior years could be claimed as a refund in years beginning in 2018. Consequently, the Company recorded a tax benefit, in fiscal 2020, resulting from carrying back a portion of the net operating loss generated in fiscal 2019 to fiscal 2014.  The Company received refunds for all taxes and alternative minimum taxes paid in fiscal 2014.  The tax benefit of $187,000 resulting from carrying back the net operating loss was primarily attributable to the difference in the federal tax rates of 34% in fiscal 2014 and 21% in fiscal 2019.

During fiscal 2020, the Company recorded net unrealized losses on marketable securities of $3,099,000. An income tax benefit of $1,371,000 resulting from these losses was recorded as a temporary difference in deferred income taxes. The Company also recorded a net gain of $4,193,000 on the sales of marketable securities.

The Company files consolidated 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 2018 with regard to federal income taxes and fiscal 2017 for state income taxes. 

The Company is utilizing all of its federal and certain state net operating losses in fiscal 2021. California has suspended the use of NOLs for fiscal years beginning in 2020, 2021 and 2022. As a result, the Company has $5.5 million of California NOLs expiring in fiscal years 2038 and 2039. The Company also has NOLs in other states, expiring as follows:

Fiscal Year ended	California NOLs		Other State NOLs
September 30, 2032	$	---	$	.1
September 30, 2037		---		.1
September 30, 2038		4.8		.2
September 30, 2039		.7		.1
No expiration		---		1.9
Total	$	5.5	$	2.4