A-Mark Precious Metals, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income (loss) from operations before provision for income taxes is shown below:



in thousands
Years Ended June 30,	2019		2018
U.S.	$	3,251	$	(3,446	)
Foreign	26		35
Net income (loss) before provision for income taxes	$	3,277	$	(3,411	)

The Company files a consolidated federal income tax return based on a June 30 tax year end. The provision for income tax expense for the years ended June 30, 2019 and 2018 consists of the following:



in thousands
Years Ended June 30,	2019			2018
Current:
Federal	(4		)	42
State and local	304			(96		)
Foreign	6			(27		)
	306			(81		)
Deferred:
Federal	668			361
State and local	41			(272		)
Foreign	—			—
	709			89

Provision for income tax expense	$	1,015		$	8

For the years ended June 30, 2019 and 2018, the effective tax rate was 31.0% and 0.2%, respectively. This increase in tax expense of $1.0 million was primarily due to a shift to operating income in year ended June 30, 2019, compared to an operating loss, the application of a lower federal statutory tax rate (e.g., 21.0% for fiscal 2019 compared to 28.06% for fiscal 2018) and an one-time revaluation charge related to deferred taxes required from the Tax Cuts & Jobs Act ("Tax Act") in the same year ago period. For the year ended June 30, 2019, the Company recorded tax expense which differed from the statutory rates primarily due to state taxes (including state minimum franchise taxes net of federal tax benefit), and non-deductible Company provided transportation benefits. For the year ended June 30, 2018, the Company recorded a tax expense that differed from statutory rate primarily due to the impact of the Tax Act discussed above. The remainder of the difference was due to normal course movements and non-material items.

A reconciliation of the income tax provisions to the amounts computed by applying the statutory federal income tax rate (21.00% for 2019, and 28.06% for 2018) to income before income tax provisions for the years ended June 30, 2019 and 2018, are set forth below:



in thousands
	Years Ended June 30,	2019			2018
Federal income tax		$	688		$	(957	)
State tax, net of federal benefit		291			(98		)
Uncertain tax positions		69			(50		)
Change in valuation allowance		—			(56		)
Tax Act ⁽¹⁾		—			1,244
Other		(33		)	(75		)
Provision for income taxes		$	1,015		$	8
_________________________________
(1)	During the year ended June 30, 2018, our Federal income tax statutory rate decreased from 35.00% to 28.06% as a result of the "Tax Act", which became effective for the Company starting in our second quarter of fiscal 2018. The Tax Act required the Company to record an one-time revaluation tax charge to reduce our net deferred tax assets based on the newly enacted corporate tax rate of 21.00%. The 28.06% tax rate was a blended rate based on the Company's fiscal year applied pursuant to IRS guidance.

Tax Balances and Activity

Income Taxes Receivable and Payable

As of June 30, 2019 and June 30, 2018, income taxes receivable totaled $1.5 million and $1.6 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, 2019 and June 30, 2018, management concluded that 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. A tax valuation was considered unnecessary for years ended June 30, 2019 and 2018.

As of June 30, 2019, 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 $1.6 million and a federal deferred tax asset of $1.6 million. 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.

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, 2019 and June 30, 2018:



in thousands
	June 30, 2019			June 30, 2018
Accrued compensation	$	108		$	86
Deferred rent	230			236
Unrealized loss on open purchase and sale commitments	—			2,351
Stock-based compensation	902			635
State tax accrual	1			37
Net operating loss carry forwards	3,077			1,657
Fixed assets	23			—
Other	109			141
Deferred tax assets	4,450			5,143

Intangible assets	(324		)	(206		)
Unrealized gain on futures and forward contracts	—			(146		)
Fixed assets	—			(5		)
Inventories	—			(319		)
Earnings from equity method investment	(569		)	(283		)
Investment in LLC. taxed as a partnership	(387		)	(287		)
Other	(7		)	(27		)
Deferred tax liabilities	(1,287		)	(1,273		)

Net deferred tax asset	$	3,163		$	3,870

Net Operating Loss Carryforwards and Tax Credits

As of June 30, 2019 and June 30, 2018, the Company has approximately $9.1 million and $2.9 million of federal net operating loss carryforwards and approximately $17.1 million and $15.5 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, 2019 and June 30, 2018, $3.1 million and $1.7 million, respectively. These net operating loss carryforwards start to expire in the year ending June 30, 2022.

As of June 30, 2019 and June 30, 2018, the Company has approximately $53,000 and $53,000, respectively, of a California state tax credit that can be carried-over indefinitely to future tax years.

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, 2019 and June 30, 2018:



in thousands
Years Ended June 30,	2019			2018

Beginning balance	$	147		$	197
Reductions due to lapse of statute of limitations	(12		)	(2		)
Additions (reductions) as a results of tax positions of prior years	81			(48		)
Ending balance	$	216		$	147

In addition to the $216,000 of accrued tax expense related to unrecognized tax positions, as shown in the table above, the Company has $50,000 of interest and $56,000 of penalties accrued to date related to its uncertain tax positions. As of June 30, 2019, the amount of this accrued liability (inclusive of the uncertain tax deductions and the associated interest and penalty accrual) totaled $322,000, and, if recognized, would reduce the Company's effective tax rate.

Tax Examinations

With exception of the open examinations 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, 2014.

Open Tax examinations


•	Utah State — for Years Ended: June 30, 2011 through June 30, 2013. SGI and the Company filed consolidated tax returns when the Company was a subsidiary of SGI, and SGI's consolidated tax returns remain under exam with the State of Utah. We are unable to determine the outcome of this exam at this time.


•	Utah State — for Years Ended: June 30, 2014 through June 30, 2017. The Company's separately filed Utah State tax returns remain under exam. The Company is unable to determine the outcome at this time.

Tax examination that Closed during Fiscal Year 2019


•	Internal Revenue Service — for Year Ended: June 30, 2015. In fiscal 2019, the Internal Revenue Service ("IRS") closed its examination of our tax filing. The impact of the IRS examination was immaterial to the financial statements.


•	New York State — for Years Ended: June 30, 2014 through June 30, 2016. In fiscal 2019, the New York Department of Taxation and Finance closed its examination of our New York State tax returns. The impact of this examination was immaterial to the financial statements.