|12 Months Ended|
Jun. 30, 2021
|Income Tax Disclosure [Abstract]|
12. INCOME TAXES
Net 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 income tax expense by jurisdiction and the effective tax rate for the years ended June 30, 2021 and 2020 are shown below:
Our effective tax rate was approximately 16.5% and 16.9% for the years ended June 30, 2021 and 2020, respectively. For the year ended June 30, 2021, our effective tax rate differs from the federal statutory rate primarily due to the exclusion of the fair value remeasurement gain of our pre-existing equity investment in JMB, a one-time benefit from the reversal of the previously established deferred tax liability related to our equity investment in JMB, an exclusion of the fiscal 2021 pre-acquisition period JMB equity earnings, the foreign derived intangible income special deduction, and an adjustment made to pre-acquisition deferred taxes related to our investment in AMST, offset by state taxes (net of federal tax benefit), state tax rate change, and other normal course non-deductible expenditures. For the year ended June 30, 2020, 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), offset by the foreign derived intangible income special deduction, NOL carrybacks, and other normal course non-deductible expenditures.
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, 2021 and 2020, are set forth below:
Tax Balances and Activity
Income Taxes Receivable and Payable
As of June 30, 2021, income taxes payable totaled $5.0 million compared to $2.1 million in the comparative period.
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, 2021 and June 30, 2020, 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 of 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, 2021, the consolidated balance sheets 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. As of June 30, 2020, 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 $1.0 million primarily comprised of net operating loss carryforwards and a federal deferred tax liability of $1.1 million.
On March 19, 2021, JMB became a wholly owned subsidiary of the Company as a result of our acquisition of the remaining interest that we did not previously own. On the Acquisition Date, the Company has considered the deferred tax impact of the excess fair value of the assets and liabilities accounted for in the business combination over their historical cost basis. Included in the June 30, 2021 balance is $21.1 million of deferred tax liabilities, $20.8 million of which relates to the excess fair value of intangibles other than goodwill over their historical cost basis and $0.3 million relating to JMB’s historical carryover deferred taxes that we assumed.
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, 2021 and June 30, 2020:
Net Operating Loss Carryforwards
As of June 30, 2021 and June 30, 2020, the Company has approximately $12.2 million and $12.6 million, state and city net operating loss carryforwards, respectively. The Company's combined state and city tax-effected net operating loss carryforwards totaled, as of June 30, 2021 and June 30, 2020, $0.9 million and $0.9 million, respectively. These state and city 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 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, 2021 and 2020:
In addition to the $277,000 of accrued tax expense related to unrecognized tax positions, as shown in the table above, the Company has $79,000 of interest and $69,000 of penalties accrued to date related to its uncertain tax positions. As of June 30, 2021, the amount of this accrued liability (inclusive of the uncertain tax deductions and the associated interest and penalty accrual) totaled $425,000, and, if recognized, would reduce the Company's effective tax rate.
During the quarter, JMB became a wholly owned subsidiary of the Company as a result of our taxable stock purchase of the remaining interest in JMB. We have considered JMB in our analysis of unrecognized tax benefit and increases during the year reflect certain inherited uncertain tax positions of JMB. (See Note 1.)
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 tax years through June 30, 2017.
Open Tax examinations
No definition available.
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/disclosureRef