Provision for income taxes during the years ended September 30, 2017 and 2016 follows:
|
| | | | | | | | |
| | Years Ended |
Income Tax Provision | | September 30, 2017 | | September 30, 2016 |
(in thousands) | | | | |
Current tax: | | | | |
State | | $ | 53 |
| | $ | 4 |
|
Federal | | 9 |
| | 66 |
|
| | | | |
Deferred tax: | | | | |
State | | — |
| | — |
|
Federal | | — |
| | — |
|
Provision for income taxes | | $ | 62 |
| | $ | 70 |
|
Differences between the federal statutory rate and IEC’s effective tax rates for fiscal 2017 and fiscal 2016 are explained by the following reconciliation.
|
| | | | | | |
| | Years Ended |
Taxes as Percent of Pretax Income | | September 30, 2017 | | September 30, 2016 |
| | | | |
Federal statutory rate | | 34.0 | % | | 34.0 | % |
| | | | |
Decrease in valuation allowance | | (164.4 | ) | | (36.5 | ) |
Deferred tax adjustment | | 65.8 |
| | — |
|
Decrease in state deferred tax rate | | — |
| | 1.2 |
|
State income taxes, net of federal benefit | | 26.8 |
| | 0.1 |
|
Increase in AMT credit | | — |
| | 1.4 |
|
Stock-based compensation | | 57.6 |
| | 1.2 |
|
Non-deductible expenses | | 23.5 |
| | 0.1 |
|
| | | | |
Income tax provision as percent of pretax income | | 43.3 | % | | 1.5 | % |
The following table displays deferred tax assets by category: |
| | | | | | | | |
| | Years Ended |
(in thousands) | | September 30,
2017 | | September 30,
2016 |
| | | | |
Deferred tax assets: | | | | |
Federal and state net operating loss carryforward | | $ | 11,367 |
| | $ | 10,973 |
|
Alternative minimum tax credit carryforward | | 1,010 |
| | 1,010 |
|
Depreciation and fixed assets | | 289 |
| | 999 |
|
Amortization and impairment of intangibles | | 28 |
| | 14 |
|
New York State investment tax & other credits | | 1,186 |
| | 1,186 |
|
Inventories | | 585 |
| | 602 |
|
Deferred gain on sale-leaseback | | 271 |
| | — |
|
Other | | 412 |
| | 599 |
|
Total before allowance | | 15,148 |
| | 15,383 |
|
Valuation allowance | | (15,148 | ) | | (15,383 | ) |
Deferred tax assets, net | | — |
| | — |
|
| | | | |
Net deferred income taxes (current and deferred) | | $ | — |
| | $ | — |
|
The Company has recorded a full valuation allowance on all deferred tax assets. Although a full valuation allowance has been recorded for all deferred tax assets, including net operating loss carryforwards (“NOLs”), these NOLs remain available to the Company to offset future taxable income and reduce cash tax payments. IEC had federal gross NOLs for income tax purposes of approximately $32.9 million at September 30, 2017, expiring mainly in years 2022 through 2025 and 2034 through 2035. The Company also has additional state NOLs available in several jurisdictions in which it files state tax returns.
Recent New York state corporate tax reform has resulted in the reduction of the business income base rate for qualified manufacturers in New York State to 0% beginning in fiscal 2016 for IEC. The credits cannot be utilized unless the New York State tax rate is no longer 0%.
The Company will continue to monitor and evaluate the positive and negative evidence considered in arriving at the above conclusion, in order to assess whether such conclusion remains appropriate in future periods, given our current operating results in fiscal 2017 and forecasted operating results in fiscal 2018.