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Income Taxes
 12 Months Ended
Sep. 30, 2024
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 9: INCOME TAXES
The following table presents the components of our income before income taxes, including inter-segment amounts:
 Fiscal Year Ended September 30,
(in thousands)202420232022
Domestic*$82,703 $26,209 $49,937 
Foreign32,905 25,424 17,776 
$115,608 $51,633 $67,713 
*    Includes the majority of our corporate administrative costs. See Note 12: Segment Information for information pertaining to segment contribution.
The following table presents the significant components of the income tax provision:
 Fiscal Year Ended September 30,
(in thousands)202420232022
Current:   
Federal$20,176 $18,753 $9,465 
State and foreign10,983 7,219 3,143 
 31,159 25,972 12,608 
Deferred:   
Federal(1,719)(11,182)983 
State and foreign3,073 (1,620)3,962 
 1,354 (12,802)4,945 
 Total income tax expense$32,513 $13,170 $17,553 
    
The following table presents a reconciliation of income taxes calculated at the statutory rate and the provision for income taxes:
 Fiscal Year Ended September 30,
(in thousands)202420232022
Income tax expense (benefit) at the federal statutory rate$24,278 $10,843 $14,223 
State taxes, net of federal benefit3,421 1,814 1,728 
Mexico inflation adjustment(2,154)(1,787)(2,089)
Non-deductible items4,169 2,655 1,705 
Foreign rate differential2,098 2,381 1,306 
Change in valuation allowance(411)311 660 
Stock compensation(202)(62)(161)
Uncertain tax positions(198)(174)(2,025)
Foreign withholding tax
998 — — 
Deferred tax true-up587 (165)3,811 
Dividends received deduction(742)(754)(699)
Non-deductible loss on debt restructuring— 1,710 — 
U.S. GAAP/statutory book adjustments(239)(1,143)— 
Other908 (2,459)(906)
Total income tax expense$32,513 $13,170 $17,553 
Effective tax rate28 %26 %26 %
The following table shows significant components of our deferred tax assets and liabilities:
 September 30,
(in thousands)20242023
Deferred tax assets:  
Cash Converters $20,051 $20,364 
Tax over book inventory8,595 8,186 
Accrued liabilities7,958 7,689 
Pawn service charges receivable3,182 2,764 
Stock compensation1,718 1,645 
Foreign tax credit1,696 1,696 
State and foreign net operating loss carryforwards13,030 14,547 
Book over tax depreciation7,052 7,298 
Operating lease liabilities
52,444 56,720 
Other6,510 7,612 
Total deferred tax assets before valuation allowance122,236 128,521 
Valuation allowance(15,685)(16,885)
Total deferred tax assets, net106,551 111,636 
Deferred tax liabilities:  
Tax over book amortization31,436 30,906 
Right-of-use assets, net
49,747 53,366 
Prepaid expenses2,086 2,097 
Total deferred tax liabilities83,269 86,369 
Net deferred tax asset$23,282 $25,267 
As of September 30, 2024, we had state net operating loss carryforwards of approximately $5.2 million, which begin to expire in 2025 if not utilized. We also had foreign net operating loss carryforwards of $47.1 million, which will begin to expire in 2030 if not utilized. Additionally, we have a $1.7 million foreign tax credit that will expire between 2025 to 2026 if not utilized.
Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary differences between the tax basis and book basis of assets and liabilities. The Company has elected to account for the tax on GILTI as a period cost and therefore has not recorded deferred taxes related to GILTI on its foreign subsidiaries. As of September 30, 2024, tax in amount of $0.7 million has been accrued for estimated tax on GILTI that will be due. A valuation allowance is established against a deferred tax asset when it is more likely than not that the deferred tax asset will not be realized. Our valuation allowance has been established to offset certain state and foreign net operating loss carryforwards and foreign tax credit carryforwards that are not more likely than not to be utilized prior to expiration. The valuation allowance decreased by $1.2 million in fiscal 2024, primarily due to the release of valuation allowance associated with net operating losses no longer available for use. We believe our results from future operations will generate sufficient taxable income in the appropriate jurisdictions such that it is more likely than not that the remaining deferred tax assets will be realized.
Deferred taxes are not provided for undistributed earnings of foreign subsidiaries of approximately $98.2 million which are intended to be reinvested outside of the U.S. Accordingly, no provision for foreign withholding taxes associated with a distribution of those earnings has been made. We estimate that, upon distribution of our share of these earnings, we would be subject to withholding taxes of approximately $5.0 million as of September 30, 2024. We provided deferred income taxes on all undistributed earnings from Cash Converters. After extensive search for multi-store acquisitions in Guatemala, in the fourth quarter of fiscal 2024, we altered our Guatemala growth strategy to a focus on organic growth of existing stores, denovos and potentially small acquisitions. As a result, we provided for applicable foreign withholding taxes on $20 million of undistributed foreign earnings and recorded a liability of $1.0 million.
The following table presents a roll-forward of unrecognized tax benefits:
 Fiscal Year Ended September 30,
(in thousands)202420232022
Beginning balance$3,293 $3,568 $4,763 
Increase for tax positions taken during a prior period223 396 547 
Decrease for tax positions taken during a prior period(337)(259)— 
Decrease for tax positions as a result of the lapse of the statute of limitations(378)(412)(1,742)
Ending balance$2,801 $3,293 $3,568 
All of the above unrecognized tax benefits, if recognized, would impact our effective tax rate for the respective period of each ending balance. The statute of limitations will expire within the next twelve months with respect to approximately $0.7 million of foreign uncertain tax positions.
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During 2024, we recognized income tax expense of $0.5 million offset by the reversal of previously accrued interest and penalties of $0.4 million due to the lapse of the statute of limitations on the associated tax position and income tax expense of $0.2 million during 2023 and an income tax benefit of $0.8 million during 2022, related to interest and penalties. The total amount of accrued interest and penalties was $0.8 million, $0.7 million and $1.0 million in 2024, 2023 and 2022, respectively.
We are subject to U.S., Mexico, Canada, Guatemala, Honduras, El Salvador, Peru, United Kingdom, and the Netherlands income taxes as well as income taxes levied by various state and local jurisdictions. With few exceptions, we are no longer subject to examinations by tax authorities for years before the tax year ended September 30, 2018. We believe that adequate provisions have been made for any adjustments that may result from tax examinations.