|12 Months Ended|
Jun. 30, 2018
|Income Tax Disclosure [Abstract]|
Income (loss) 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 (benefit) expense from provision for income taxes for the years ended June 30, 2018 and 2017 consists of the following:
A reconciliation of the income tax provisions to the amounts computed by applying the statutory federal income tax rate (28.06% for 2018, and 35% for 2017) to income before income tax provisions for the years ended June 30, 2018 and 2017, are set forth below:
The schedule of deferred taxes presented below summarizes the components of deferred taxes that have been classified as deferred tax assets and deferred tax liabilities related to taxable temporary differences as of June 30, 2018 and June 30, 2017:
The effective tax rate decreased to a provision of 0.2% for the year ended June 30, 2018, compared to a provision of 34.5% for the year ended June 30, 2017. The decrease in tax expense of $3.7 million was primarily due to a s shift to an operating loss in June 30, 2018 from operating income in the same year ago period and the impact of the Tax Cuts and Job Act (see below). For the year ending June 30, 2018, the Company recorded a tax benefit of $1.0 million related to our pre-tax operating loss, offset by the impact of a one-time revaluation tax charge of $1.2 million related to the Tax Cuts and Job Act (see below). The remainder of the difference was due to normal course movements and non-material items.
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 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. This is the result of using the income tax rate of 35.0% for the first and second quarters of fiscal year 2018 and the reduced income tax rate of 21.0% for the third and fourth quarters of fiscal year 2018. 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 to preclude taxpayers from carrying net operating losses (NOLs) back to prior taxable years. As such, the realization of such deferred taxes post enactment have been realized at a lower 28.06% blended tax rate, or a 21.0% tax rate to the extent realized after fiscal 2018. We continue to analyze the impact of the Tax Act primarily related to our state income taxes. Our accounting for the estimated tax effects of the Tax Act will be completed during the measurement period, which should not extend beyond one year from the enactment date.
Tax Balances and Activity
Income Taxes Receivable and Payable
As of June 30, 2018 and June 30, 2017, income taxes receivable totaled $1.6 million and $0.0 million, respectively. As of June 30, 2018 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 June 30, 2018 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 June 30, 2018, 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 $1.7 million and a federal deferred tax asset of $2.2 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 June 30, 2018 and June 30, 2017, the Company has approximately $2.9 million and $0.0 million of federal net operating loss carryforwards and approximately $15.5 million and $12.5 million, state and city net operating loss carryforwards, respectively. The Company's combined federal, state and city tax-effected net operating loss carryforwards totaled, as of June 30, 2018 and June 30, 2017, $1.7 million and $0.7 million, respectively. These net operating loss carryforwards start to expire in the year ending June 30, 2022. The change in state net operating loss is a result of a change in the estimated use of net operating losses at June 30, 2017 versus the actual amount used when completed tax returns were filed.
As of June 30, 2018 and June 30, 2017, the Company had $0 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. The change in the valuation allowance is a result of the settlement of a state tax audit and the expiration of statute of limitation.
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 operations. 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.
Below is a reconciliation of the net unrecognized tax benefits for the years ended June 30, 2018 and June 30, 2017:
In addition to the $147,000 of accrued tax expense related to unrecognized tax positions, as shown in the table above, the Company accrued $48,000 of interest and $40,000 of penalties related to its uncertain tax positions. As of June 30, 2018, the amount of this accrued liability (inclusive of the uncertain tax deductions and the associated interest and penalty accrual) totaled $235,000, and, if recognized, would reduce the Company's effective tax rate. For the years ended June 30, 2018 and 2017, the Company recognized reductions of interest expense of $50,000 and $26,000, respectively, as well as, reductions of penalties of $13,000 and $39,000, respectively, related to our uncertain tax positions.
With exception of the items noted below, either prior federal, state or local examinations have been completed by the tax authorities or the statute of limitations have expired for U.S. federal, state and local income tax returns filed for the years through June 30, 2012.
Internal Revenue Service — June 30, 2008 through June 30, 2013
During the year ended June 30, 2018, the Former Parent settled its IRS appeal for the tax years ended June 30, 2008 through 2013. As a result, the Former Parent amended its states filings that resulted in a state tax benefit of approximately $0.3 million to the Company. Generally, the state statute for examining the specific items that were included in the amendment is two years from the date of filing.
Internal Revenue Service — June 30, 2015
In a prior fiscal year, the Internal Revenue Service notified the Company of an examination for the year ended June 30, 2015. The Company settled this examination during the year ended June 30, 2018, which was closed subsequent to to June 30, 2018. The impact of the IRS examination is immaterial to the financial statements.
Utah State — June 30, 2011 through June 30, 2013
The Former Parent remains under exam with the state of Utah for the years ended June 30, 2011 through 2013. The Former Parent and the Company, as a subsidiary in a consolidated tax filing, are unable to determine the outcome of this exam at this time.
Utah State — June 30, 2014 through June 30, 2017
During the year ended June 30, 2018, the Company was notified by the state of Utah that the tax returns for the period ended June 30, 2014 through 2017 were selected for exam. The Company is unable to determine the outcome at this time.
New York — March 14, 2014 through June 30, 2014 (Former Parent)
In a prior fiscal year, the Former Parent was notified by the New York Department of Taxation and Finance that its tax return was under examination for the period ended June 30, 2014, which included the Company’s short period tax return through March 14, 2014. The former parent closed this exam during the year ended June 30, 2018. There was no change to the tax returns filed as a result of this examination.
New York — June 30, 2014 through June 30, 2016 (A-Mark Precious Metals Inc.)
In a prior fiscal year, the Company was notified by the New York Department of Taxation and Finance that its tax returns for the periods ended June 30, 2014, June 30, 2015 and June 30, 2016 were selected for audit. The Company is unable to determine the outcome of the audit at this time.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef