Income Taxes |
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| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes |
INCOME TAXES Income from operations before provision for income taxes is shown below:
The Company files a consolidated federal income tax return based on a June 30 tax year end. The provision for (benefit from) income taxes for the three and six months ended December 31, 2017 and 2016 consists of the following:
The effective tax rate for the three and six months ended December 31, 2017 and 2016 are set forth below:
Tax Cuts and Jobs Act
On December 22, 2017, the comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act makes broad and complex changes to the U.S. tax code. The Company has reviewed the anticipated tax impact of the recent legislation as it relates to the financial statements for the period ended December 31, 2017 and going forward.
The SEC staff has issued Staff Accounting Bulletin 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act. In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but the Company is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. A company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740.
The final transition impacts of the Tax Act may differ materially from our estimate, due to, among other things, changes in interpretations of the Tax Act, legislative action to address questions that arise as a result of the Tax Act, changes in accounting standards for income taxes or related interpretations in response to the Tax Act, and updates or changes to estimates the Company has utilized to calculate the transition impacts. The Company has estimated its deferred tax assets as of the date of enactment. In addition, the Company has estimated the amount of the deferred tax assets expected to reverse by the end of the year. To the extent there are updates or changes to these estimates, there will be an adjustment to the amount recorded as expense related to the implementation of the Tax Act. These tax law changes are the primary reasons for the abnormally high effective tax rate for the three and six months periods ended December 31, 2017. The Company has been able to make reasonable estimates of the effects of elements of the Tax Act and has recorded provisional adjustments to incorporate these estimates in our financial statements.
With respect to deferred tax assets (net of deferred tax liabilities) that are in existence as of the enactment date (i.e., valued using a 35.0% federal tax rate), the Company has been negatively impacted by the (1) new corporate tax rates, and (2) the effective date of the new provision, the effect of which is to preclude taxpayers from carrying net operating losses (NOLs) back to prior taxable years. This is because any realization of deferred taxes during the remaining portion of the fiscal year against taxable income will be realized at a lower 28.06% blended tax rate. Further, to the extent the realization of such deferred tax assets were to exceed such taxable income, resulting in an NOL, such NOL can no longer be carried back to a prior tax year and can only be carried forward to subsequent years for realization at a 21.0% tax rate.
The Tax Act reduces the corporate tax rate from 35.0% to 21.0% for tax years beginning after December 31, 2017. For fiscal year taxpayers, a blended tax rate is required to compute the current tax liability. The Company has adjusted its deferred tax rate to 21.0% or 28.06% as of December 22, 2017 depending upon when the temporary differences are expected to reverse. For certain of our deferred tax assets and deferred tax liabilities, we have recorded a provisional decrease of $0.2 million, with a corresponding net adjustment to deferred income tax $0.2 million for the three and six months ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, our estimate may be affected by other factors, including fluctuation in market pricing related to our inventory and related hedging activity. Accordingly, our estimate of the timing of the reversal of these items may ultimately impact the tax rate which is applied to the reversal of certain timing differences. The Company anticipates analyzing any adjustments each quarter and plans to finalize any adjustment within the allowable measurement period.
Tax Balances and Activity
Income Taxes Receivable and Payable
As of December 31, 2017 and June 30, 2017, income taxes receivable totaled $0.7 million and $0.0 million, respectively. As of December 31, 2017 and June 30, 2017, income taxes payable totaled $0.0 million and $1.4 million, respectively.
Deferred Tax Assets and Liabilities
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized by evaluating both positive and negative evidence. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2017 and June 30, 2017, management concluded that with the exception of certain state net operating losses, it was more likely than not that the Company would be able to realize the benefit of the U.S. federal and state deferred tax assets. We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets.
As of December 31, 2017, the consolidated balance sheet reflects the deferred tax items for each tax-paying component (i.e., federal and state), resulting in a state deferred tax asset of $1.5 million and a federal deferred tax asset of $2.7 million. As of June 30, 2017, the consolidated balance sheet reflects the deferred tax items for each tax-paying component (i.e., federal and state), resulting in a state deferred tax asset of $1.4 million and a federal deferred tax asset of $2.5 million.
Net Operating Loss Carryforwards and Valuation Allowances
As of December 31, 2017 and June 30, 2017, the Company's state and city net operating loss carryforwards totaled approximately $12.5 million and $12.5 million, respectively. The Company's tax-effected net operating loss carryforwards totaled, as of December 31, 2017 and June 30, 2017, $0.7 million and $0.7 million, respectively. These net operating loss carryforwards start to expire in the year ending June 30, 2028. As of December 31, 2017 and June 30, 2017, the Company had $56,000 and $56,000, respectively, of valuation allowance for certain state and city net operating loss carryforwards, based on the Company's annual assessment of the realizability of its deferred tax assets.
Unrecognized Tax Benefits
The Company has taken or expects to take certain tax benefits on its income tax return filings that it has not recognized a tax benefit (i.e., an unrecognized tax benefit) on its consolidated statements of income. The Company's measurement of its uncertain tax positions is based on management's assessment of all relevant information, including, but not limited to prior audit experience, audit settlement, or lapse of the applicable statute of limitations. For the six months ended December 31, 2017, there was no material movement unrecognized tax benefits, including interest and penalties.
Tax Examinations
Refer to Note 12 of the Notes to Consolidated Financial Statements in the 2017 Annual Report for information relating to open tax examinations; there have been no significant changes.
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