Income Taxes

12 Months Ended

Sep. 30, 2022

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	2022		2021		2020
Current federal(a)	$	—	$	—	$	(4,641)
Current state	4,859		1,126		485
Deferred federal	47,239		20,331		20,639
Deferred state	1,173		89		1,490
Total expense	$	53,271	$	21,546	$	17,973

(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. Refer to Note 2 for further discussion.

The Company's expense (benefit) 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	2022		2021		2020
Income tax computed at statutory rate	$	57,538	$	30,182	$	14,971
State income taxes, net of federal benefit	4,482		1,564		1,300
Deferred rate change	346		(904)		260
Changes in uncertain tax positions	—		—		(2)
Permanent differences	2,952		2,433		2,177
Tax credits	(12,081)		(12,088)		(939)
Other, net	34		359		206
Total expense	$	53,271	$	21,546	$	17,973

The principal differences between our effective tax rate and the U.S. federal statutory rate for fiscal years 2022, 2021 and 2020 relate to state taxes, permanent differences and tax credits. Due to the effects of tax credits, our income tax expense is not always directly correlated to the amount of pre-tax income for the associated 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, 2022 and 2021:

in thousands	September 30, 2022		September 30, 2021
Deferred tax assets:
Federal and state net operating loss carryforwards	$	149,299	$	177,611
Incentive compensation	12,914		13,793
Warranty and other reserves	7,091		6,006
Inventory adjustments	6,716		25,174
Intangible assets	1,515		6,016
Property, equipment and other assets	771		2,085
Uncertain tax positions	705		705
Other	2,743		2,435
Total deferred tax assets	181,754		233,825
Valuation allowance	(25,396)		(29,059)
Deferred tax assets, net	$	156,358	$	204,766

As of September 30, 2022, our gross deferred tax assets above included $61.0 million of federal net operating loss (NOL) carryforwards, $57.8 million of federal tax credits, and $33.9 million of state NOL carryforwards. The majority of our federal NOL carryforwards expire at various dates through our fiscal 2033, our federal tax credits expire at various dates through our fiscal 2042, and a majority of our state NOL carryforwards expire at various dates through our fiscal 2041. As of September 30, 2022, valuation allowance of $25.4 million remains on various state NOL carryforwards for which the Company has concluded it is not more likely than not that these attributes would be realized.

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 2022, 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, shortage in housing supply, and our backlog. The negative factors included the overall health of the broader economy, significant increases in mortgage interest rates, and weakened housing demand. As of September 30, 2022, the Company will have to cumulatively generate approximately $907.1 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 2042.

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	2022		2021		2020
Balance at beginning of year	$	3,358	$	3,441	$	3,473
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)
Balance at end of year	$	3,358	$	3,358	$	3,441

If we were to recognize our $3.4 million of gross unrecognized tax benefits remaining as of September 30, 2022, substantially all would impact our effective tax rate. Additionally, we had no accrued interest and penalties as of September 30, 2022, 2021 and 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, 2022, we do not expect that any of our uncertain tax positions will reverse within the next twelve months.