Income Tax |
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| Income Tax |
14. Income Tax
The following table presents the provision for income taxes and our effective tax rate for the three and nine-month periods ended June 30, 2025 and 2024:
The effective income tax rates on operations are 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 rate for the three months ended June 30, 2025 is higher than the statutory rate primarily due to the change in the valuation allowance between quarters. The incremental change in valuation allowance has a greater impact because of the smaller change in pre-tax book loss. The effective tax rates for the nine months ended June 30, 2025 and the three and nine-month periods ended June 30, 2024 are lower than the statutory rate mainly due to the effects of the non-cash impairment charges recognized for intangible assets and goodwill and 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 full valuation allowance against the remaining net DTA position.
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 reduced 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 net deferred tax assets are realizable. The Company recorded an additional $12,426 valuation allowance, resulting in a total valuation allowance of $13,220, during the nine months ended June 30, 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. The One Big Beautiful Bill of 2025
On July 4, 2025, H.R.1 - One Big Beautiful Bill was enacted, introducing a wide range of tax reforms for businesses. Due to the Company's loss position and limited exposure to affected provisions, the bill’s overall impact is not material. The Company has historically elected out of bonus depreciation for all classes of property under Section 168(k)(7) and depreciates assets under MACRS without accelerated expensing. The Company continues to monitor ongoing regulatory guidance related to the new law. |
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