Note 3 - Income Taxes

12 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 3  –  INCOME TAXES

Components of income tax expense are as follows for the years ended:

	September 30,			September 30,
	2021			2020
Current:
Federal	$	5,154,287		$	1,966,491
State		439,944			175,201
Current income tax expense		5,594,231			2,141,692
Deferred:
Federal		(234,297	)		(252,929	)
State		46,947			(26,879	)
Deferred income tax expense		(187,350	)		(279,808	)
Income tax expense	$	5,406,881		$	1,861,884

The following is a reconciliation of the federal statutory income tax rate to the effective tax rate as a percent of pre-tax income for the following years ended:

	September 30,			September 30,
	2021			2020
Federal statutory rate		21.0	%		21.0	%
State income taxes		2.2	%		2.0	%
Permanent differences:
Change in valuation allowance		-			(0.5%	)
Expiration and utilization of state NOL’s		-			0.4	%
Research and development credits		(0.7%	)		(2.5%	)
Excess tax expense (benefits) from stock-based compensation		(1.5%	)		(0.1%	)
Tax rate		21.0	%		20.3	%

As of September 30, 2021 and 2020, the current income tax payable was approximately $933,000 and $845,000, respectively. Current income tax payable amounts are included in Accrued Expenses in the Company’s balance sheets.

As of September 30, 2021 and 2020, the Company had no U.S. federal net operating loss (“NOL”) carry-forwards. The state NOL carryforwards of $769,000 at September 30, 2020 were fully utilized during fiscal 2021 resulting in no state NOL carryforwards at September 30, 2021. In addition, as of September 30, 2021, the Company had Minnesota research and development tax credits of $300,033. As of September 30, 2020, the Company had Minnesota research and development and alternative minimum tax credits of $337,000 and $32,000, respectively. The Company has not recorded a valuation allowance on these research and development related deferred tax assets as the Company believes it is more likely than not they will be utilized before they begin to expire in fiscal year 2031.

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

	September 30,			September 30,
	2021			2020
Deferred income tax assets (liabilities):
Intangibles	$	(91,924	)	$	(86,319	)
Property and equipment depreciation		(379,572	)		(419,896	)
Net operating loss carry forwards and credits		300,032			351,446
Stock-based compensation		230,553			169,730
Inventories		518,526			386,296
Prepaid expenses		(48,505	)		(43,233	)
Accrued expenses and reserves		519,408			467,010
Goodwill		(683,051	)		(646,916	)
Gross deferred tax asset (liability)		365,467			178,118
Valuation allowance		-			-
Net deferred tax asset (liability)	$	365,467		$	178,118

Realization of NOL carryforwards and other deferred tax temporary differences are contingent upon future taxable earnings.  The Company’s deferred tax assets were reviewed for expected utilization by assessing the available positive and negative factors surrounding their recoverability. As of September 30, 2021 and 2020, no valuation allowance was deemed necessary as the Company determined it was more likely than not that the Company’s deferred tax assets will be realized.

The valuation allowance activity for the years ended September 30, 2021 and 2020 is as follows: 

Year Ended	Balance at Beginning of Year		Income Tax Benefit			Reversal for State NOL Expiration and Utilization			Balance at End of Year
September 30, 2021	$	-	$	-		$	-		$	-
September 30, 2020	$	47,014	$	(5,235	)	$	(41,779	)	$	-

The Company is required to recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.  For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.  The Company applies the interpretation to all tax positions for which the statute of limitations remained open.  The Company had no liability for unrecognized tax benefits and did not recognize any interest or penalties during the years ended September 30, 2021 or 2020.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various state jurisdictions.  Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.  With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for fiscal years ending prior to 2004.  We are generally subject to U.S. federal and state tax examinations for all tax years since 2004 due to our NOL carryforwards and the utilization of the carryforwards in years still open under statute.