The Company files a consolidated federal income tax return and certain combined state and local income tax returns with its subsidiaries. Income taxes consist of the following:
| 2017 | | Federal | | | State | | | Total | |
| Current income tax expense | | $ | 1,074,000 | | | $ | 439,000 | | | $ | 1,513,000 | |
| Deferred income tax expense | | | 2,126,000 | | | | 412,000 | | | | 2,538,000 | |
| Total income tax expense | | $ | 3,200,000 | | | $ | 851,000 | | | $ | 4,051,000 | |
| 2016 | | Federal | | | State | | | Total | |
| Current income tax expense | | $ | 54,000 | | | $ | 332,000 | | | $ | 386,000 | |
Deferred income tax expense (benefit) | | | 3,012,000 | | | | (308,000 | ) | | | 2,704,000 | |
| Total income tax expense | | $ | 3,066,000 | | | $ | 24,000 | | | $ | 3,090,000 | |
| 2015 | | Federal | | | State | | | Total | |
| Current income tax expense (benefit) | | $ | (93,000 | ) | | $ | 23,000 | | | $ | (70,000 | ) |
| Deferred income tax expense | | | 233,000 | | | | 30,000 | | | | 263,000 | |
| Total income tax expense | | $ | 140,000 | | | $ | 53,000 | | | $ | 193,000 | |
The income tax provision related to pre-tax income (loss) vary from the federal statutory rate as follows:
| | | Years Ended September 30, | |
| | | 2017 | | | 2016 | | | 2015 | |
| Statutory federal rate | | | 34.0 | % | | | (34.0 | )% | | | 34.0 | % |
| State income taxes, net of federal income tax expense (benefit) | | | 3.4 | % | | | (8.2 | )% | | | 7.3 | % |
| Permanent differences for tax purposes | | | (14.4 | )% | | | 35.4 | % | | | 9.4 | % |
| Write-off of deferred tax asset attributable to change in ownership (see below) | | | - | % | | | 128.9 | % | | | - | % |
| Other | | | 1.4 | % | | | 3.1 | % | | | (10.4 | )% |
| | | | 24.4 | % | | | 125.2 | % | | | 40.3 | % |
Significant components of the Company
’s net deferred tax assets in the accompanying financial statements are as follows:
| | | September 30, | |
| | | 2017 | | | 2016 | |
| Net operating loss carryforwards | | $ | 6,229,000 | | | $ | 6,951,000 | |
| Contingent consideration | | | 123,000 | | | | 168,000 | |
| Stock based compensation | | | 819,000 | | | | 640,000 | |
| Accrued expenses | | | 1,404,000 | | | | 596,000 | |
| Accounts receivable and other receivables | | | 216,000 | | | | 294,000 | |
| Federal AMT credit carryforward | | | 261,000 | | | | 272,000 | |
| Fixed assets | | | (186,000 | ) | | | 256,000 | |
| Intangibles | | | (486,000 | ) | | | (500,000 | ) |
| Securities | | | (1,960,000 | ) | | | 281,000 | |
| Total deferred tax assets | | $ | 6,420,000 | | | $ | 8,958,000 | |
At
September 30, 2017,
the Company had available federal net operating loss carryforwards of approximately
$17.5
million, which includes approximately
$5.5
million resulting from the Gilman acquisition, and state net operating loss carryforwards of approximately
$10.7
million, principally from the Gilman acquisition in
October 2013
that
may
be applied against future taxable income and expire at various dates between
2020
and
2033.
Due to the change in ownership resulting from the completion of the Offer discussed in Note
19,
the Company
’s deferred tax asset relating to the Company’s net operating loss carry forwards will be subject to an annual limitation under Section
382
of the Internal Revenue Code, thereby reducing the amount of net operating loss carry forwards available to the Company to offset future taxable income. Such reduction in
2016
resulted in a write-off of deferred income taxes of
$3,185,000.
Authoritative guidance for uncertainty in income tax requires the Company to determine whether a tax position is more-likely-than-
not
to be sustained upon examination by the applicable taxing authority, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than
50%
likely of being realized upon ultimate settlement, which could result in the Company recording a tax liability or reducing a deferred tax asset related to net operating loss carryforwards. The Company reviews and evaluates tax positions in its major jurisdictions and determines whether or
not
there are uncertain tax positions that require financial statement recognition. Based on this review, the Company has determined that the guidance for uncertainty in income taxes has
no
impact on its consolidated financial statements as of
September 30, 2017.
The Company will recognize tax-related interest and penalties, if applicable, related to liabilities for uncertain tax positions as a component of income tax expense.