16. Income Taxes
Net provision for (benefit from) income taxes for the fiscal years ended March 31 consists of the following:
| 2017 | 2016 | |||||||
| Current: | ||||||||
| Federal | $ | (70,267 | ) | $ | 182,479 | |||
| State and local | (23,422 | ) | 91,083 | |||||
| (93,689 | ) | 273,562 | ||||||
| Deferred: | ||||||||
| Federal | (52,132 | ) | (1,560,459 | ) | ||||
| State and local | 89,821 | (353,103 | ) | |||||
| 37,689 | (1,913,562 | ) | ||||||
| Net provision for (benefit from) income taxes | $ | (56,000 | ) | $ | (1,640,000 | ) | ||
The differences (expressed as a percentage of pretax income (loss)) between the statutory federal income tax rate and the effective income tax rate as reflected in the accompanying statements of operations are as follows:
| 2017 | 2016 | |||||||
| Statutory federal income tax rate | 34.0 | % | 34.0 | % | ||||
| State and local income taxes | 6.8 | % | 7.3 | % | ||||
| Permanent differences | (5.0 | )% | (2.9 | )% | ||||
| Minority investment in unconsolidated affiliate | (35.1 | )% | 1.1 | % | ||||
| Other | 1.7 | % | (1.3 | )% | ||||
| Effective tax rate | 2.4 | % | 38.2 | % | ||||
The Company is unable to determine if the earnings from the minority investment in the unconsolidated affiliate are permanently invested outside of the United States. Therefore, the Company has recognized income taxes and the related foreign tax credits on the foreign operations of these earnings. The earnings on the foreign operations of the minority investment in the unconsolidated affiliate will become taxable in the United States only to the extent that distributions are received by the Company.
The permanent differences in our reconciliation of the effective tax rate for the years ended March 31, 2017 and 2016 are as follows:
| 2017 | 2016 | |||||||||||||||
| Amortization of Customer Lists | $ | 219,696 | (3.8 | )% | $ | 219,471 | (2.1 | )% | ||||||||
| Other non-deductible expenses | 73,361 | (1.2 | )% | 75,879 | (0.8 | )% | ||||||||||
| Total | $ | 293,057 | (5.0 | )% | $ | 295,350 | (2.9 | )% | ||||||||
The permanent difference for amortization of customer lists arose through the acquisition of a business structured as a stock purchase. The Company amortizes the value of these customer lists for financial statement purposes, but is not allowed to deduct amortization of the customer lists for tax purposes. Other nondeductible expenses include meals, entertainment and penalties.
During the year ended March 31, 2017, the Company recorded a $2.1 million impairment charge in connection with its investment in OPSA. Any capital loss when and if the investment is sold is not expected to be deductible because the Company does not expect to have capital gains to utilize the capital loss if ultimately recognized.
The significant components of deferred tax assets and liabilities as of March 31, 2017 and 2016 are as follows:
| 2017 | 2016 | |||||||
| Current deferred tax assets: | ||||||||
| Accrued expenses | $ | 651,793 | $ | 324,338 | ||||
| Litigation settlement | 297,295 | 288,820 | ||||||
| Accounts receivable | 221,325 | 268,283 | ||||||
| Net current deferred tax assets | $ | 1,170,413 | $ | 881,441 | ||||
| Non-current deferred tax assets (liabilities): | ||||||||
| Workers’ compensation reserve | $ | 3,022,916 | $ | 3,083,094 | ||||
| Employee stock compensation | 439,805 | 444,842 | ||||||
| Intangible assets | 307,268 | 325,532 | ||||||
| Litigation settlement | - | 288,820 | ||||||
| Insurance reserves | 149,453 | 252,702 | ||||||
| Accrued expenses | 70,050 | 66,230 | ||||||
| Capital loss carry-forward | - | 54,672 | ||||||
| Impairment of minority investment in unconsolidated affiliate | 856,758 | (93,400 | ) | |||||
| Equipment | (44,130 | ) | (95,797 | ) | ||||
| Net non-current deferred tax assets | $ | 4,802,120 | $ | 4,326,695 | ||||
| Allowance for deferred tax asset related to capital loss carry-forward | - | (54,672 | ) | |||||
| Allowance for deferred tax asset related to minority investment in unconsolidated affiliate | (856,758 | ) | - | |||||
| Total deferred tax assets | $ | 5,115,775 | $ | 5,153,464 | ||||
As of March 31, 2016, we had fully reserved for a capital loss carry-forward in the amount of $132,500 which did not reverse before the carry-forward expired unused in fiscal 2017.
As of March 31, 2017, we have fully reserved for a deferred tax asset in the amount of $856,758 related to impairment of our minority investment in an unconsolidated affiliate.
Fiscal years 2014 through 2017 remain subject to examination by federal and state taxing authorities with certain states having open tax years beginning in fiscal 2013.