Income Taxes

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company's expense (benefit) from income taxes from continuing operations consists of the following for the periods presented:

	Fiscal Year Ended September 30,
in thousands	2021		2020		2019
Current federal (a)	$	—	$	(4,641)	$	(4,935)
Current state	1,126		485		693
Deferred federal	20,331		20,639		(31,291)
Deferred state	89		1,490		(1,684)
Total expense (benefit)	$	21,546	$	17,973	$	(37,217)

(a) Fiscal 2020 federal current benefit is primarily driven by the expected refund of our remaining alternative minimum tax credit balance due to the enactment of the CARES Act. Fiscal 2019 federal current benefit is primarily driven by the expected refund of half of our outstanding alternative minimum tax credit that became refundable due to the enactment of the Tax Cuts and Jobs Act. See Note 2 for further discussion.

The expense from income taxes from continuing operations differs from the amount computed by applying the federal income tax statutory rate as follows for the periods presented:

	Fiscal Year Ended September 30,
in thousands	2021		2020		2019
Income tax computed at statutory rate	$	30,182	$	14,971	$	(24,494)
State income taxes, net of federal benefit	1,564		1,300		(590)
Deferred rate change	(904)		260		(88)
Changes in uncertain tax positions	—		(2)		(7)
Permanent differences	2,433		2,177		2,908
Tax credits	(12,088)		(939)		(14,902)
Other, net	359		206		(44)
Total expense (benefit)	$	21,546	$	17,973	$	(37,217)

The principal differences between our effective tax rate and the U.S. federal statutory rate for fiscals 2021, 2020 and 2019 relate to state taxes, permanent differences and tax credits. Due to the effects of changes in our valuation allowance on our deferred tax balance, tax credits and changes in our unrecognized tax benefits, our effective tax rates in fiscal 2021, 2020, and 2019 are not meaningful metrics, as our income tax amounts were not directly correlated to the amount of our pretax income (loss) for those periods.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of our assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax assets are as follows as of September 30, 2021 and September 30, 2020:

in thousands	September 30, 2021		September 30, 2020
Deferred tax assets:
Federal and state net operating loss carryforwards	$	177,611	$	192,981
Inventory adjustments	25,174		34,971
Incentive compensation	13,793		13,116
Intangible assets	6,016		13,993
Warranty and other reserves	6,006		5,503
Property, equipment and other assets	2,085		2,197
Uncertain tax positions	705		723
Other	2,435		844
Total deferred tax assets	233,825		264,328
Valuation allowance	(29,059)		(39,185)
Deferred tax assets, net	$	204,766	$	225,143

As of September 30, 2021, our gross deferred tax assets above included $100.3 million for federal net operating loss carryforwards, $45.7 million for federal tax credits, and $34.9 million for state net operating loss carryforwards. The majority of our federal net operating loss carryforwards expire at various dates through our fiscal 2033, and the federal tax credits and majority of our state net operating losses expire at various dates through our fiscal 2041. As of September 30, 2021, valuation allowance of $29.1 million remains on various state attributes for which the Company has concluded it is not more likely than not that these attributes would be realized at that time.

We experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code (Section 382) as of January 12, 2010. Section 382 contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss carryforwards, tax credits and certain built-in losses or deductions recognized during the five-year period after the ownership change to offset future taxable income. Because the five-year period has expired, we have determined the actual impact and final classification of those amounts, which are properly reflected in the amounts presented above. There can be no assurance that another ownership change, as defined in the tax law, will not occur. If another “ownership change” occurs, a new annual limitation on the utilization of net operating loss carryforwards, tax credits and built-in losses would be determined as of that date. This limitation, should one be required in the future, is subject to assumptions and estimates that could differ from actual results.

Valuation Allowance

A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, we assess the need to establish valuation allowances for deferred tax assets periodically based on the more-likely-than-not realization threshold criterion. In our assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company's experience with operating loss carryforwards and tax credit carryforwards not expiring unused, the Section 382 limitation on our ability to carryforward pre-ownership change net operating losses, recognized built-in losses or deductions and tax planning alternatives. Our assessment, while rooted in actual Company performance, are highly subjective and rely on certain estimates, including forecasts, which could differ materially from actual results.

In fiscal 2021, our conclusions about our ability to more likely than not realize all of our federal and certain state tax attributes remain consistent with our prior determinations. We considered positive factors including significant increases in our current earnings, interest savings from our debt reduction strategies, housing demand and price appreciation, and our backlog. The negative factors included the overall health of the broader economy, labor shortages and unemployment levels, as well as potential increases in mortgage interest rates. As of September 30, 2021, the Company will have to cumulatively generate approximately $927.4 million in pre-tax income over the course of its carryforward period to realize its deferred tax assets prior to their expiration, which, as previously discussed, is the Company's fiscal 2041.

Unrecognized Tax Benefits

A reconciliation of our unrecognized tax benefits is as follows for the beginning and end of each period presented:

	Fiscal Year Ended September 30,
in thousands	2021		2020		2019
Balance at beginning of year	$	3,441	$	3,473	$	3,494
Additions for tax positions related to current year	—		—		—
Additions for tax positions related to prior years	—		—		—
Reductions in tax positions of prior years	—		—		—
Lapse of statute of limitations	(83)		(32)		(21)
Balance at end of year	$	3,358	$	3,441	$	3,473

If we were to recognize our $3.4 million of gross unrecognized tax benefits remaining as of September 30, 2021, substantially all would impact our effective tax rate. Additionally, we had no accrued interest and penalties as of September 30, 2021 and September 30, 2020. If applicable, we would record interest and penalties related to unrecognized tax benefits in income tax expense within our consolidated statements of operations.

In the normal course of business, we are subject to audits by federal and state tax authorities regarding various tax liabilities. The statute of limitations for our major tax jurisdictions remains open for examination for fiscal year 2007 and subsequent years. As of September 30, 2021, we do not expect that any of our uncertain tax positions will reverse within the next twelve months.