Income Tax |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Income Taxes |
14. Income Tax
The following table presents the provision for income taxes and our effective tax rate for the three and six-month periods ended March 31, 2025 and 2024:
The effective income tax rate on operations is based upon the estimated income for the year, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits or other tax contingencies. The effective tax rates for the three and six-month periods ended March 31, 2025 are lower than the statutory rate mainly due to the effect of the valuation allowance on the net deferred tax asset (“DTA”) position. Other than the deferred tax liability relating to indefinite lived assets, the Company is maintaining a valuation allowance against the remaining net DTA position. The effective tax rates for the three and six-month periods ended March 31, 2024 are higher than the statutory tax rate primarily due to the effect of federal tax credits and state and local taxes.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. In view of the significance of the Company’s recent pre-tax book losses and likelihood of continuing uncertainty in the industry and economy as a whole, management excluded projections of future income from its forecast of the reversal of its DTAs as of March 31, 2025. As a result, it was determined that the company's net DTAs would not be realized as there is not sufficient positive evidence to conclude that it is more likely than not that the deferred taxes are realizable. The Company has recorded an additional $12,713 valuation allowance, resulting in a total valuation allowance of $13,634, as of March 31, 2025, accordingly.
Under Internal Revenue Code 382, if a corporation undergoes a specified change in ownership, the corporation’s ability to use its pre-change net operating loss (“NOL”) carryforwards and other pre-change tax attributes to offset its post-change income may be limited. Such limitation may result in the expiration of the NOL carryforwards generated before 2018 prior to their utilization. The Company engaged outside tax experts to perform a comprehensive section 382 study to calculate the estimated limitation and evaluate the corporation’s ability to use its NOL carryforwards and other pre-change tax attributes. The study was finalized in the quarter ended March 31, 2025 and concluded that the Company’s pre-2018 NOL carryovers and other tax attributes are subject to limitation under section 382. However, due to the presence of the valuation allowance, the Company’s section 382 limitation has no net effect on the Company’s net deferred tax position. |
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