Note 9. Income Taxes

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Tax Cuts and Jobs Act was enacted on December 22, 2017 which reduced the U.S. corporate statutory rate from 35% to 21% beginning on January 1, 2018. We used 25% as an effective rate.

Net deferred tax liabilities consist of the following components as of June 30, 2017 and 2016:

The income tax provision differs from the amount of income tax determined by applying the U.S. Federal Income Tax Rate to pretax income from continuing operations for the years ended June 30, 2017 and 2016 due to the following:

At June 30, 2017, the Company had net operating loss carryforwards of approximately $5,077,000.00 that may be offset against future taxable income up through 2036. Filing of tax returns will have to be done to establish this amount and date. No tax benefits have been reported in the June 30, 2017 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.

Reconciliation of the differences between the statutory tax rate and the effective income tax rate is as follows at June 30, 2017 and June 30, 2016 respectively: