| (8) | Income Taxes |
As of both September 30, 2017 and 2016, the Company’s gross liability for unrecognized tax benefits related to uncertain tax positions was $0.35 million and $0.5 million, respectively, of which $0.2 million and $0.3 million would decrease the Company’s effective income tax rate if the tax benefits were recognized. The Company has recognized $0.14 million of the gross liability due to finalization of state regulations. A reconciliation of the activity related to the liability for gross unrecognized tax benefits during fiscal year 2017 are as follows:
| 2017 | ||||
| (In thousands) | ||||
|
Beginning year balance |
$ | 493 | ||
|
Decrease related to prior year tax positions |
(140 | ) | ||
|
Increase related to current year tax positions |
— | |||
|
Settlements |
— | |||
|
Lapse of statutes of limitations |
— | |||
|
|
|
|||
|
Ending year balance |
$ | 353 | ||
|
|
|
|||
The Company’s net liability for accrued interest and penalties was $0.14 million as of September 30, 2017. The Company has elected to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.
The total amount of unrecognized tax benefits can change due to final regulations, audit settlements, tax examinations activities, lapse of applicable statutes of limitations and the recognition and measurement criteria under the guidance related to accounting for uncertainly in income taxes. The Company is unable to estimate what this change could be within the next 12 months, but does not believe it would be material to its financial statements.
Income tax expense was comprised of the following for fiscal years 2017, 2016, and 2015:
| 2017 | 2016 | 2015 | ||||||||||
| (In thousands) | ||||||||||||
|
Current |
||||||||||||
|
Federal |
$ | 6,088 | $ | 6,324 | $ | 5,017 | ||||||
|
State |
493 | 511 | 1,089 | |||||||||
|
|
|
|
|
|
|
|||||||
| 6,581 | 6,835 | 6,106 | ||||||||||
|
|
|
|
|
|
|
|||||||
|
Deferred |
||||||||||||
|
Federal |
1,606 | 1,539 | 1,444 | |||||||||
|
State |
120 | (181 | ) | (136 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| 1,726 | 1,358 | 1,308 | ||||||||||
|
|
|
|
|
|
|
|||||||
|
Total |
$ | 8,307 | $ | 8,193 | $ | 7,414 | ||||||
|
|
|
|
|
|
|
|||||||
The principal reasons for the differences from the federal statutory rate are as follows:
| 2017 | 2016 | 2015 | ||||||||||
|
Federal tax at statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
True-up of prior year’s tax provision |
-0.1 | -1.8 | -2.1 | |||||||||
|
State tax at statutory rate |
2.5 | 2.6 | 3.9 | |||||||||
|
Permanent and other differences |
0.2 | 0.3 | 0.2 | |||||||||
|
Uncertain tax position allowance |
-0.5 | 0.2 | 2.4 | |||||||||
|
Amendment of prior period tax return |
-0.7 | — | — | |||||||||
|
Early adoption of ASU 2016-09 |
-0.7 | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
|
Effective Tax Rate |
35.7 | % | 36.3 | % | 39.4 | % | ||||||
|
|
|
|
|
|
|
|||||||
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of September 30, 2017, 2016, and 2015, are presented below:
| 2017 | 2016 | 2015 | ||||||||||
| (In thousands) | ||||||||||||
|
Current deferred tax assets: |
||||||||||||
|
Accrued compensation |
$ | 130 | $ | 61 | $ | 69 | ||||||
|
Stock Compensation |
140 | 138 | 137 | |||||||||
|
State taxes |
399 | 408 | 476 | |||||||||
|
Capital loss carryforward |
10 | 10 | 11 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total deferred tax assets |
679 | 617 | 693 | |||||||||
|
Less: disallowed capital loss |
(10 | ) | (10 | ) | (10 | ) | ||||||
|
|
|
|
|
|
|
|||||||
|
Net deferred tax assets |
669 | 607 | 683 | |||||||||
|
Noncurrent deferred tax liabilities: |
||||||||||||
|
Property and equipment |
(24 | ) | (50 | ) | (55 | ) | ||||||
|
Management contracts |
(12,186 | ) | (10,381 | ) | (9,093 | ) | ||||||
|
|
|
|
|
|
|
|||||||
|
Total deferred tax liabilities |
(12,210 | ) | (10,431 | ) | (9,148 | ) | ||||||
|
|
|
|
|
|
|
|||||||
|
Net deferred tax liabilities |
$ | (11,541 | ) | $ | (9,824 | ) | $ | (8,465 | ) | |||
|
|
|
|
|
|
|
|||||||
The Company elected to early adopt ASU 2016-09 using a modified retrospective approach, effective as if adopted the first day of the fiscal year, October 1, 2016. As a result of the early adoption, income tax benefits of approximately $0.4 million were recognized. The Company has elected to continue to estimate the number of stock-based awards expected to vest, as permitted by ASU 2016-09, rather than electing to account for forfeitures as they occur. As such, this has no cumulative effect on retained earnings for the prior year. With the early adoption of ASU 2016-09, the Company has elected to present the cash flow statement on a prospective transition method and no prior periods have been adjusted.