Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.2.2
Income Taxes
12 Months Ended
Jun. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

13. INCOME TAXES

Net income from operations before provision for income taxes for the years ended June 30, 2022 and 2021 is shown below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Years Ended

 

 

 

 

June 30,
2022

 

 

 

June 30,
2021

 

U.S.

 

 

$

166,379

 

 

 

$

192,771

 

Foreign

 

 

 

38

 

 

 

 

30

 

 

 

 

$

166,417

 

 

 

$

192,801

 

 

The Company files a consolidated federal income tax return based on a June 30 tax year end. The provision for income tax expense by jurisdiction and the effective tax rate for the years ended June 30, 2022 and 2021 are shown below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Years Ended

 

 

 

 

June 30,
2022

 

 

 

June 30,
2021

 

Current:

 

 

 

 

 

 

 

 

Federal

 

 

$

32,518

 

 

 

$

28,899

 

State and local

 

 

 

4,701

 

 

 

 

4,954

 

Foreign

 

 

 

225

 

 

 

 

97

 

 

 

 

 

37,444

 

 

 

 

33,950

 

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

 

(3,281

)

 

 

 

(2,961

)

State and local

 

 

 

(825

)

 

 

 

888

 

 

 

 

 

(4,106

)

 

 

 

(2,073

)

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

$

33,338

 

 

 

$

31,877

 

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

 

 

20.0

%

 

 

 

16.5

%

Our effective tax rate was approximately 20.0% and 16.5% for the years ended June 30, 2022 and 2021, respectively. For the year ended June 30, 2022, our effective tax rate differs from the federal statutory rate primarily due to the excess tax benefit from share-based compensation, foreign derived intangible income special deduction, partially offset by state taxes (net of federal tax benefit). For the year ended June 30, 2021, our effective tax rate differs from the federal statutory rate primarily due to adjustments related to our acquisition of JMB, foreign derived intangible income special deduction, partially offset by state taxes (net of federal tax benefit).

A reconciliation of the income tax provisions to the amounts computed by applying the statutory federal income tax rate to income before income tax provisions for the years ended June 30, 2022 and 2021, are set forth below:

in thousands

 

 

 

 

 

 

 

 

June 30,
2022

 

 

June 30,
2021

 

Federal income tax

 

$

34,947

 

 

$

40,488

 

State tax, net of federal benefit

 

 

3,236

 

 

 

3,935

 

Adjustment related to JMB acquisition

 

 

 

 

 

(9,539

)

Foreign derived intangible income

 

 

(1,476

)

 

 

(2,427

)

Stock based compensation

 

 

(3,075

)

 

 

(1,233

)

Reversal of pre-acquisition deferred taxes in joint venture

 

 

 

 

 

(981

)

State rate change

 

 

(171

)

 

 

950

 

Permanent adjustments

 

 

(252

)

 

 

266

 

Foreign rate differential

 

 

217

 

 

 

91

 

Other

 

 

(88

)

 

 

327

 

 

 

$

33,338

 

 

$

31,877

 

 

Tax Balances and Activity

Income Taxes Receivable and Payable

As of June 30, 2022 and June 30, 2021, income tax payable totaled $0.4 million and $5.0 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, 2022 and June 30, 2021, 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 allowance was considered unnecessary, as 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.

As of June 30, 2022, 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 liability of $0.9 million and a federal deferred tax liability of $14.5 million. As of June 30, 2021, 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 liability of $1.7 million and a federal deferred tax liability of $17.8 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 and deductible temporary differences as of June 30, 2022 and June 30, 2021:

 

in thousands

 

 

 

 

 

 

 

 

June 30,
2022

 

 

June 30,
2021

 

Accrued compensation

 

$

58

 

 

$

189

 

Lease liabilities

 

 

1,804

 

 

 

1,871

 

Stock-based compensation

 

 

1,222

 

 

 

1,067

 

State tax accrual

 

 

368

 

 

 

391

 

Net operating loss carry forwards

 

 

855

 

 

 

855

 

Other

 

 

34

 

 

 

50

 

Deferred tax assets

 

 

4,341

 

 

 

4,423

 

 

 

 

 

 

 

 

Intangible assets

 

 

(15,071

)

 

 

(20,834

)

Fixed assets

 

 

(1,000

)

 

 

(438

)

Earnings from equity method investment

 

 

(2,052

)

 

 

(981

)

Right of use assets

 

 

(1,617

)

 

 

(1,633

)

Other

 

 

(9

)

 

 

(51

)

Deferred tax liabilities

 

 

(19,749

)

 

 

(23,937

)

 

 

 

 

 

 

 

Net deferred tax liability

 

$

(15,408

)

 

$

(19,514

)

 

Net Operating Loss Carryforwards

As of June 30, 2022 and June 30, 2021, the Company has approximately $12.2 million and $12.2 million of state net operating loss carryforwards, respectively. The Company's state tax-effected net operating loss carryforwards totaled $0.9 million and $0.9 million, as of June 30, 2022 and June 30, 2021, respectively. These state net operating loss carryforwards start to expire in the year ending June 30, 2030.

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 as 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.

Below is a reconciliation of the net unrecognized tax benefits for the years ended June 30, 2022 and 2021:

in thousands

 

 

 

 

 

 

 

 

June 30,
2022

 

 

June 30,
2021

 

Beginning balance

 

$

277

 

 

$

163

 

Decreases in tax positions for prior year

 

 

(93

)

 

 

 

Reductions due to lapse of statute of limitations

 

 

(38

)

 

 

(26

)

Additions as a results of tax positions taken during current period

 

 

 

 

 

140

 

 

 

$

146

 

 

$

277

 

In addition to the $146,000 of accrued tax expense, as shown in the table above, the Company has $46,000 of interest and $37,000 of penalties accrued to date related to its uncertain tax positions. As of June 30, 2022, the amount of this accrued liability (inclusive of the uncertain tax deductions and the associated interest and penalty accrual) totaled $229,000, and, if recognized, would reduce the Company's effective tax rate.

Tax Examinations

During the year ended June 30, 2022, the Internal Revenue Service completed the examination of JMB’s 2018 income tax year and made no changes to the reported tax.