Income Taxes (Policies)

9 Months Ended

Jun. 30, 2020

Income Taxes [Abstract]

Income Tax, Policy [Policy Text Block]

Note 17 – Income Taxes

The income tax provision for interim periods is comprised of income tax on jurisdiction-level income (loss) figures provided at the most recent estimated annual effective income tax rate, adjusted for the income tax effect of discrete items. Management uses an estimated annual effective income tax rate based on the forecasted pretax income (loss) and statutory tax rates in the various jurisdictions in which it operates. The Company’s effective income tax rate differs from the U.S. statutory income tax rate primarily due to state and local taxes, global intangible low taxed income (“GILTI”), and differing statutory tax rates applied to the income of non-U.S. subsidiaries. The Company records the tax effect of certain discrete items, including the effects of changes in tax laws, tax rates and adjustments with respect to valuation allowances or other unusual or nonrecurring tax adjustments, in the interim period in which they occur, as an addition to, or reduction from, the income tax provision, rather than being included in the estimated effective annual income tax rate. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no income tax benefit can be recognized are excluded from the estimated annual effective income tax rate.

The Company is required to assess its deferred tax assets and the need for a valuation allowance at each reporting period. This assessment requires judgment on the part of management with respect to benefits that may be realized. The Company will record a valuation allowance against deferred tax assets when it is considered more likely than not that all or a portion of the deferred tax assets will not be realized.

Current and Prior Period Tax Expense

Income tax expense of $12.4 million and $5.3 million for the three months ended June 30, 2020 and 2019, respectively, and income tax expense of $34.6 million and $19.0 million for the nine months ended June 30, 2020 and 2019, respectively, reflects estimated federal, foreign, state and local income taxes.

For the three months ended June 30, 2020 and 2019, the Company’s effective tax rate was 25%. The effective tax rate was higher than the U.S. federal statutory rate of 21% due to U.S. state and local taxes, GILTI, U.S. and foreign permanent differences, and the amount of foreign earnings taxed at higher tax rates.

For the nine months ended June 30, 2020 and 2019, the Company’s effective tax rate was 27% and 25%, respectively. The effective tax rate was higher than the U.S. federal statutory rate of 21% due to U.S. state and local taxes, GILTI, U.S. and foreign permanent differences, and the amount of foreign earnings taxed at higher tax rates. The estimated GILTI tax expense increased the effective rate approximately 1.0% and 1.3% for the nine months ended June 30, 2020 and 2019, respectively. The amount of foreign earnings taxed at higher rates increased the effective tax rate approximately 2.0% and 1.4% for nine months ended June 30, 2020 and 2019, respectively. The estimated U.S. state and local taxes increased the effective tax rate approximately 1.7% and 1.2% for nine months ended June 30, 2020 and 2019, respectively.

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. As of June 30, 2020 and September 30, 2019, the Company has net operating loss carryforwards for U.S. federal, state, local, and foreign income tax purposes of $6.9 million and $7.1 million, net of valuation allowances, respectively, which are available to offset future taxable income in these jurisdictions. The state and local net operating loss carryforwards of $5.6 million, net of valuation allowance, begin to expire after September 2020. As a result of the Tax Cuts and Jobs Act of 2017, the alternative minimum tax (“AMT”) credit carryforward deferred tax asset has been reclassified to income taxes receivable. As a result of the Coronavirus Aid, Relief, and Economic Security Act (CARES act), the AMT credit carryforward is partially refundable on the fiscal year 2019 tax return. In fiscal 2018, the Company generated $5.1 million in foreign tax credit carryforwards as part of the mandatory repatriation transition tax. These credits expire in fiscal year 2028. In the judgment of management, it is more likely than not that sufficient taxable income will be earned to utilize the foreign tax credit carryforwards during the current fiscal year.

The valuation allowance for deferred tax assets as of June 30, 2020 and September 30, 2019 was $8.4 million and $8.5 million, respectively. The valuation allowances as of June 30, 2020 and September 30, 2019 were primarily related to U.S., state and local net operating loss carryforwards and foreign net operating loss carryforwards that, in the judgment of management, are not more likely than not to be realized.

As of June 30, 2020 and September 30, 2019, the Company had accumulated undistributed earnings generated by its foreign subsidiaries of approximately $426.6 million and $383.5 million, respectively. The repatriation of these amounts would not be subject to U.S. federal income tax, but may be subject to applicable foreign withholding and state taxes in the relevant jurisdictions. The Company does not intend to distribute earnings in a taxable manner, and therefore intends to limit distributions to earnings previously taxed in the U.S., or earnings that would qualify for the 100 percent dividends received deduction, and earnings that would not result in any significant foreign withholding or state taxes. The Company repatriated $30.0 million and $13.0 million for the nine months ended June 30, 2020 and 2019, respectively, of earnings previously taxed

in the U.S. resulting in no significant incremental taxes upon repatriation. Therefore, the Company has not recognized a deferred tax liability on its investment in foreign subsidiaries.

The Company and its subsidiaries file income tax returns with the U.S. federal and various U.S. state and local, as well as foreign jurisdictions. The Company has open tax years ranging from September 30, 2012 through September 30, 2019 with U.S. federal and state and local taxing authorities. During the three months ending March 31, 2020, the Company closed its examination with the U.S. Internal Revenue Service for the 2016 tax year with no adjustments required. In the UK, the Company has open tax years ending September 30, 2017 to September 30, 2019. The Company is currently under examination by HM Revenue and Customs in the UK for the 2017 tax year; however, no additional tax liability is expected. In Brazil, the Company has open tax years ranging from December 31, 2014 through December 31, 2019. In Argentina, the Company has open tax years ranging from September 30, 2012 to September 30, 2019. In Singapore, the Company has open tax years ranging from September 30, 2015 to September 30, 2019 and is currently under examination by the Inland Revenue Authority of Singapore for the year ended September 30, 2017; however, no additional tax liability is expected.