Entity information:

13. Income Taxes

 

iFresh is a Delaware holding company who is subject to the U.S. income tax.

 

NYM is taxed as a corporation for income tax purposes and as a result of the “Contribution Agreement” entered into in December 31, 2014 NYM has elected to file a consolidated federal income tax return with its eleven subsidiaries. NYM and the shareholders of the eleven entities, as parties to the Contribution Agreement, entered into a tax-free transaction under Section 351 of the Internal Revenue Code of 1986 whereby the eleven entities became wholly owned subsidiaries of the Company. As a result of the tax-free transaction and the creation of a consolidated group, the subsidiaries are required to adopt the tax year-end of its parent, NYM. NYM was incorporated on December 30, 2014 and has adopted a tax-year end of March 31.

 

Certain of the subsidiaries have incurred net operating losses (“NOL”) in tax years ending prior to the Contribution Agreement. The net operating losses are subject to the Separate Return Limitation Year (“SRLY”) rules which limit the utilization of the losses to the subsidiaries who generated the losses. The SRLY losses are not available to offset taxable income generated by members of the consolidated group.

 

Based upon management’s assessment of all available evidence, the Company believes that it is more-likely-than-not that the deferred tax assets, primarily for certain of the subsidiaries SRLY NOL carry-forwards will not be realizable; and therefore, a full valuation allowance is established for SRLY NOL carry-forwards. The valuation allowance for deferred tax assets was approximately $788,039 as of March 31, 2017 and $904,000 as of March 31, 2016.

 

The Company has approximately $2,318,000 and $2,486,000 of US NOL carry forward of which approximately $2,318,000 and $2,231,000 are SRLY NOL as of March 31, 2017 and March 31, 2016, respectively. For income tax purpose, those NOLs will expire in the year 2030 through 2034.

 

Income Tax Provision

 

The provision for income taxes consists of the following components:

 

  Years ended 
  March 31, 
  2017  2016 
Current: .    
Federal $1,230,772  $1,076,465 
State  591,783   837,904 
   1,822,555   1,914,369 
Deferred:        
Federal  (162,976)  979,725 
State  (3,245)  122,780 
   (166,221)  1,102,505 
         
Total $1,656,334  $3,016,874 

 

Tax Rate Reconciliation

 

Following is a reconciliation of the Company’s effective income tax rate to the United State federal statutory tax rate:

 

  For the years ended 
  2017  2016 
Expected tax at U.S. statutory income tax rate  34%  34%
State and local income taxes, net of federal income tax effect  14%  12%
Other non-deductible fees and expenses  1%  1%
Other  3%  - 
Effective tax rate  52%  45%

 

Deferred Taxes

 

The effect of temporary differences included in the deferred tax accounts as follows:

 

  March 31,  March 31, 
  2017  2016 
Deferred Tax Asset/ (Liability):      
Prepaid expenses $-  $(5,061)
Deferred expenses  123,260   47,055 
Sec 263A Inventory Cap  215,248   (3,315)
Deferred rent  2,467,259   2,215,822 
Intangible assets  -   8,747 
Depreciation and amortization  (2,718,968)  (2,383,829)
Net operating losses  788,039   945,420 
Valuation allowance  (788,039)  (904,261)
Net Deferred Tax Asset (Liability) $86,799  $(79,422)