Note 10. Income Taxes
Pre-tax income (loss) consists of the following jurisdictions (in thousands):
| Years ended June 30, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
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Domestic |
$ | 2,670 | $ | (20,862 | ) | $ | (32,694 | ) | ||||
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Foreign |
— | — | — | |||||||||
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Pre-tax loss |
$ | 2,670 | $ | (20,862 | ) | $ | (32,694 | ) | ||||
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The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is as follows (in thousands):
| Years Ended June 30, | ||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||
| $ | % | $ | % | $ | % | |||||||||||||||||||
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Tax (expense) benefit at U.S. statutory rates |
$ | (908 | ) | 34 | % | $ | 7,093 | 34 | % | $ | 11,116 | 34 | % | |||||||||||
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State tax |
(158 | ) | 6 | % | 1,215 | 6 | % | 1,906 | 6 | % | ||||||||||||||
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Other |
(208 | ) | 8 | % | (356 | ) | (2 | )% | (475 | ) | (2 | )% | ||||||||||||
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Capital loss carryover expiration |
(26,382 | ) | 988 | % | — | 0 | % | — | 0 | % | ||||||||||||||
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Decrease (increase) in valuation allowance |
27,655 | (1,036 | )% | (7,953 | ) | (38 | )% | (12,548 | ) | (38 | )% | |||||||||||||
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| $ | (1 | ) | 0 | % | $ | (1 | ) | 0 | % | $ | (1 | ) | 0 | % | ||||||||||
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Deferred tax liabilities and assets are comprised of the following (in thousands):
| June 30, | ||||||||
| 2017 | 2016 | |||||||
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Deferred tax assets: |
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Tax carried forward losses |
$ | 7,886 | $ | 7,730 | ||||
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Share-based payments |
5,621 | 4,904 | ||||||
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Consultant and other accruals |
325 | 145 | ||||||
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Fixed and intangible assets |
29,660 | 32,484 | ||||||
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Compensation accruals |
630 | 545 | ||||||
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Capital lease obligation |
413 | — | ||||||
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Capital loss carryforward |
— | 26,382 | ||||||
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Total deferred tax assets |
44,535 | 72,190 | ||||||
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Valuation allowance for deferred tax assets |
(44,535 | ) | (72,190 | ) | ||||
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Net deferred tax assets and liabilities |
$ | — | $ | — | ||||
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We evaluate the recoverability of the deferred tax assets and the amount of the required valuation allowance. Due to the uncertainty surrounding the realization of the tax deductions in future tax returns, we have recorded a valuation allowance against our net deferred tax assets as of June 30, 2017 and 2016. At such time as it is determined that it is more likely than not that the deferred tax assets will be realized, the valuation allowance would be reduced.
We had federal and state net operating loss carryforwards of approximately $20.1 million and $17.8 million as of June 30, 2017. The federal and state net operating losses will begin to expire in 2022 and 2029, respectively. We also had federal and state capital loss carryforwards of approximately $66.2 million that expired in 2017.
Our ability to utilize our net operating loss carryforwards may be substantially limited due to ownership changes that have occurred or that could occur in the future under Section 382 of the Internal Revenue Code and similar state laws. During 2017, we completed a study to analyze whether one or more ownership changes have occurred and determined that two such ownership changes did occur. Although these changes currently limit the use of some of our net operating losses, all of the net operating losses will be available for utilization before they expire.
None of our prior income tax returns have been selected for examination by a major taxing jurisdiction; however, the statutes of limitations for various filings remain open. The oldest filings subject to potential examination for federal, state, and foreign purposes are 2014 and 2013, respectively. If we utilize a net operating loss related to a closed year, the statute for that year would re-open. We have not reduced any tax benefit on our financial statements due to uncertain tax positions as of June 30, 2017 and we are not aware of any circumstance that would significantly change this result through the end of fiscal year 2018. To the extent we incur income-tax related penalties or interest, we will recognize them as additional income tax expense.