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Income Taxes | 12 Months Ended
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Sep. 30, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of the income tax provision were as follows (in thousands):
| Year Ended September 30,
| 2021 |  | 2020 |  | 2019
Current: |  |  |  |  |
Federal | $ | 911 |  |  | $ | 945 |  |  | $ | 1,350 |
State | 472 |  |  | 1,186 |  |  | 186 |
Foreign | 73 |  |  | 66 |  |  | 88 |
| 1,456 |  |  | 2,197 |  |  | 1,624 |
Deferred: |  |  |  |  |
Federal | (1,062) |  |  | 1,045 |  |  | 366 |
State | (30) |  |  | (91) |  |  | 457 |
Foreign | 97 |  |  | 519 |  |  | (3) |
| (995) |  |  | 1,473 |  |  | 820 |
Total income tax provision | $ | 461 |  |  | $ | 3,670 |  |  | $ | 2,444 |
Income (loss) before income taxes was as follows (in thousands):
| Year Ended September 30,
| 2021 |  | 2020 |  | 2019
U.S. | $ | 3,076 |  |  | $ | 21,243 |  |  | $ | 11,859 |
Foreign | (1,984) |  |  | (913) |  |  | 475 |
Income before income taxes | $ | 1,092 |  |  | $ | 20,330 |  |  | $ | 12,334 |
A reconciliation of the statutory U.S. income tax rate and the effective income tax rate, as computed on earnings before income tax provision in each of the three years presented in the Consolidated Statements of Operations, was as follows:
| Year Ended September 30,
| 2021 |  | 2020 |  | 2019
Statutory rate | 21 | % |  | 21 | % |  | 21 | %
State income taxes, net of federal benefit | 25 |  |  | 5 |  |  | 4 |
Research and development credit | (101) |  |  | (13) |  |  | (7) |
Foreign rate differential | 10 |  |  | — |  |  | 1 |
Foreign taxes | 10 |  |  | — |  |  | 1 |
Valuation allowance | 62 |  |  | 4 |  |  | (2) |
Deferred tax rate differential | (19) |  |  | — |  |  | — |
Non-deductible expenses(1) | 30 |  |  | 1 |  |  | 2 |
Other | 4 |  |  | — |  |  | — |
Effective rate | 42 | % |  | 18 | % |  | 20 | %
(1) Certain prior year amounts have been reclassified for consistency with the current year presentation.
Our income tax provision reflects an effective tax rate on pre-tax results of 42% in Fiscal 2021 compared to 18% and 20% in Fiscal 2020 and 2019, respectively. The reduction in pre-tax book income as compared to prior years caused tax adjustments to yield a greater impact to the effective tax rate in Fiscal 2021. The effective tax rate of 42% for Fiscal 2021 was favorably impacted by the current year estimated Research and Development Tax Credit (R&D Tax Credit) as well as the utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation allowance. The effective tax rate was negatively impacted by the losses recognized in other foreign jurisdictions, primarily in the U.K., that were reserved with a valuation allowance as well as the establishment of a valuation allowance against the deferred tax assets in Mexico in the amount of $0.1 million. The effective tax rate of 18% for Fiscal 2020 was favorably impacted by the estimated R&D Tax Credit as well as the utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation allowance. Likewise, the discrete items recorded in the third quarter of Fiscal 2020 in the amount of $1.7 million associated with the release of reserves for unrecognized tax benefits as a result of the expiration of statutes of limitations and the IRS audit settlement favorably impacted the effective tax rate. The effective tax rate was negatively impacted by the discrete item recorded in the second quarter of Fiscal 2020 for the valuation allowance against our U.K. deferred tax assets in the amount of $0.5 million as well as by the losses recognized in various foreign jurisdictions that were reserved with a valuation allowance. The effective tax rate for Fiscal 2019 approximated the U.S. federal statutory rate as favorable adjustments related to the utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation allowance, and the R&D Tax Credit were largely offset by unfavorable adjustments primarily related to state income taxes and other permanent items. During our assessment of deferred income taxes, in the second quarter of Fiscal 2020, we recorded a valuation allowance of $0.5 million against our U.K. net deferred tax assets. Similarly, we recorded a valuation allowance of $0.1 million against our Mexican net deferred tax assets during the fourth quarter of Fiscal 2021 as a result of our assessment of deferred income taxes. In assessing the realizability of net deferred tax assets, we determined it was more-likely-than-not that the net deferred tax assets may not be realized based upon recent U.K. and Mexican tax losses and anticipated results in the near term. Estimates may change as new events occur, estimates of future taxable income are reduced or increased, additional information becomes available, or operating environments change, which may result in a full or partial reversal of the valuation allowance. We have not recorded deferred income taxes on $11.9 million of undistributed earnings of our foreign subsidiaries because of management’s intent to indefinitely reinvest such earnings. Upon distribution of these earnings in the form of dividends or otherwise, we may be subject to U.S. income taxes and foreign withholding taxes. It is not practical, however, to estimate the amount of taxes that may be payable on the eventual remittance of these earnings. We are subject to income tax in the U.S., multiple state jurisdictions and certain international jurisdictions, primarily the U.K. and Canada. We do not consider any state in which we do business to be a major tax jurisdiction. We remain open to examination in the other jurisdictions as follows: Canada 2014 – 2020, United Kingdom 2019 – 2020 and the United States 2018 – 2020. As of September 30, 2021, we did not have any state audits underway that would have a material impact on our financial position or results of operations. The net deferred income tax asset was comprised of the following (in thousands):
| September 30,
| 2021 |  | 2020
Gross assets | $ | 20,427 |  |  | $ | 18,326 |
Gross liabilities and valuation allowance | (15,788) |  |  | (14,682) |
Net deferred income tax asset | $ | 4,639 |  |  | $ | 3,644 |
The tax effect of temporary differences between U.S. GAAP accounting and federal income tax accounting creating deferred income tax assets and liabilities was as follows (in thousands):
| September 30,
| 2021 |  | 2020
Deferred Tax Assets: |  |  |
Net operating loss | $ | 12,682 |  |  | $ | 10,823 |
Credit carryforwards | 1,598 |  |  | 1,490 |
Deferred compensation | 2,095 |  |  | 1,681 |
Uniform capitalization and inventory | 1,222 |  |  | 1,067 |
Stock-based compensation | 921 |  |  | 1,079 |
Reserve for accrued employee benefits | 718 |  |  | 929 |
Warranty accrual | 579 |  |  | 655 |
Accrued legal | 130 |  |  | 112 |
Postretirement benefits liability | 156 |  |  | 111 |
Other | 326 |  |  | 379 |
Deferred tax assets | $ | 20,427 |  |  | $ | 18,326 |
Deferred Tax Liabilities: |  |  |
Depreciation and amortization | $ | (4,404) |  |  | $ | (5,035) |
Retention and other | (886) |  |  | (620) |
Deferred tax liabilities | $ | (5,290) |  |  | $ | (5,655) |
Less: valuation allowance | (10,498) |  |  | (9,027) |
Net deferred tax asset | $ | 4,639 |  |  | $ | 3,644 |
As of September 30, 2021, we had tax credit carryforwards of $0.1 million not reserved with a valuation allowance that are available to reduce future U.S. federal tax liabilities. The majority of these tax credit carryforwards expire beginning in 2031. In addition, we had international net operating loss carryforwards of $0.5 million that were not reserved with a valuation allowance available to offset future taxable income in the respective jurisdictions, with an indefinite carryforward period. We have established a valuation allowance in the amount of $10.5 million primarily related to the Canadian and U.K. net deferred tax assets. The net increase in the total valuation allowance during the year was $1.5 million which was largely a result of the current year loss recognized in the U.K. In assessing the realizability of net deferred tax assets, we consider whether it is more-likely-than-not that some portion or all of the net deferred tax assets may not be realized. The ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. A reconciliation of the beginning and ending amount of the unrecognized tax benefits follows (in thousands):
| Year Ended September 30,
| 2021 |  | 2020 |  | 2019
Balance at beginning of period | $ | 1,252 |  |  | $ | 2,703 |  |  | $ | 1,854 |
Increases related to tax positions taken during the current period | 251 |  |  | 220 |  |  | 240 |
Increases related to tax positions taken during a prior period | 75 |  |  | 97 |  |  | 609 |
Decreases related to expiration of statute of limitations | — |  |  | (545) |  |  | — |
Decreases related to settlement with taxing authorities | (169) |  |  | (1,223) |  |  | — |
Balance at end of period | $ | 1,409 |  |  | $ | 1,252 |  |  | $ | 2,703 |
Included in the balance of unrecognized tax benefits at the end of Fiscal 2021, 2020, and 2019 are $1.1 million, $0.8 million, and $2.1 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Our policy is to recognize interest and penalties related to income tax matters as tax expense. The amount of interest and penalty expense recorded for the year ended September 30, 2021 was not material. Management believes that, within the next twelve months, it is reasonably possible that the unrecognized tax benefits will decrease by approximately $0.3 million due to the expiration of certain federal statutes of limitations. We are unable to make reasonably reliable estimates regarding the timing of future cash outflows, if any, associated with the remaining unrecognized tax benefits for the open periods of Fiscal 2018 – 2021.Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income tax in the period such resolution occurs.

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- Definition 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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