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Income Taxes
 12 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of the provision for income taxes of continuing operations are as follows:
 Year Ended September 30,
 202120202019
(in thousands)
Current tax provision (benefit):   
U.S. Federal$— $— $— 
State293 382 453 
Foreign847 313 611 
1,140 695 1,064 
Deferred tax provision (benefit):   
U.S. Federal(23,315)74 103 
State(1,252)(27)(31)
Foreign57 59 64 
(24,510)106 136 
Total (benefit) provision$(23,370)$801 $1,200 
Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
 September 30,
 20212020
(in thousands)
Deferred tax assets:  
Net operating losses—Foreign$13,593 $12,709 
Net operating losses—U.S. 31,456 35,126 
Accrued vacation and bonus678 571 
Inventory capitalization219 54 
Allowance for doubtful accounts96 65 
Stock compensation expense1,415 1,804 
Operating lease assets3,605 2,236 
Depreciation2,339 1,266 
Other897 893 
Total deferred tax assets before valuation allowance54,298 54,724 
Less: valuation allowance(13,813)(41,788)
Net deferred tax assets40,485 12,936 
Deferred tax liabilities:  
Amortization of intangibles 107 291 
Amortization of goodwill7,322 6,666 
Capitalized costs5,602 4,470 
Operating lease liabilities3,394 2,059 
Pension liability238 138 
Total deferred tax liabilities$16,663 $13,624 
Net deferred taxes$23,822 $(688)
The reconciliation of the U.S. federal statutory rate to the effective rate for continuing operations is as follows:
 Year Ended September 30,
 202120202019
U.S. statutory rate21.0 %21.0 %21.0 %
Stock-based stock compensation expense(14.1)%(14.9)%(2.0)%
Nondeductible compensation expense5.5 %(6.0)%(0.6)%
Other permanent items0.1 %(1.1)%(4.2)%
State taxes3.0 %(13.2)%(0.4)%
Net foreign rate differential0.5 %(0.8)%(0.6)%
Unrecognized tax benefits0.1 %5.1 %(1.5)%
Change in valuation allowance(98.9)%9.9 %(22.5)%
Write-down of deferred tax assets on share-based stock compensation0.7 %(12.3)%(7.9)%
Write-down of deferred tax assets on net operating loss(2.8)%(15.9)%10.6 %
Other0.2 %1.3 %1.5 %
Effective rate(84.7)%(26.9)%(6.6)%
As of September 30, 2021 and 2020, the Company had federal and state deferred tax assets of $23.5 million and $27.7 million, respectively, related to available federal and state net operating loss (NOL) carryforwards, foreign tax credit carryforwards, and other U.S. deductible temporary differences. The federal and state NOL carryforwards expire beginning in 2035 and 2022, respectively. The Company's ability to use these various carryforwards to offset any taxable income generated in future taxable periods may be limited under Section 382 and other federal tax provisions. The foreign tax credit carryforwards expire beginning in 2023. At September 30, 2021 and 2020, the Company had deferred tax assets related to available foreign NOL carryforwards of $13.6 million and $12.7 million, respectively. All but $0.4 million of our foreign NOLs maintain an indefinite carry forward life. The NOLs with limited carryforward periods will expire beginning in 2022.
The Company evaluates the recoverability of its deferred tax assets on a jurisdictional basis by considering whether deferred tax assets will be realized on a more likely than not basis. To the extent a portion or all of the applicable deferred tax assets do not meet the more likely than not threshold, a valuation allowance is recorded. Consideration was given to the tax planning strategies and, when applicable, future taxable income as to how much of the relevant deferred tax asset could be realized on a more likely than not basis. The Company has recorded a valuation allowance of $13.8 million and $41.8 million against its gross deferred tax asset balance at September 30, 2021 and September 30, 2020, respectively. At each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of September 30, 2021, in part because in the current year we achieved three years of cumulative pre-tax income in the U.S. federal jurisdiction, the Company determined that there is sufficient positive evidence to conclude that it is more likely than not that additional deferred tax assets of $27.9 million are realizable. It therefore recorded a net valuation allowance release of $27.9 million for the year ended September 30, 2021.
On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the Pandemic. The CARES Act, among other things, accelerates the recovery of alternative minimum tax (AMT) credits into fiscal year 2020. During fiscal year 2020, the Company recovered its full AMT refund of $1.7 million. Prior to the CARES Act, the Company’s AMT credits were recoverable in fiscal years 2021 through 2023. The CARES Act also permits net operating loss (NOL) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, NOLs incurred in fiscal years 2019, 2020, and 2021 may be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company does not expect the NOL provisions of the CARES Act to result in a material cash benefit.
The Tax Act and Jobs Act of 2017 ("The Tax Act") subjects a U.S. shareholder to a minimum tax on "global intangible low-taxed income" ("GILTI") earned by certain foreign subsidiaries. The FASB Staff Q&A Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred. The Company has elected to recognize the resulting tax on GILTI as an expense in the period the tax is incurred.
On July 10, 2018, the Company acquired 100% of the stock of Machinio for $19.9 million. Under the acquisition method of accounting, the Company recorded a net deferred tax liability of $0.7 million comprised primarily of acquired intangibles netted
against NOLs and other deferred assets and recognized a $0.7 million tax benefit from a reduction to its valuation allowance. The total amount of acquired NOLs, which are subject to limitations under Section 382, were $1.4 million.
The Company has not recorded a provision for deferred U.S. tax expense on the undistributed earnings of foreign subsidiaries since the Company intends to indefinitely reinvest the earnings of these foreign subsidiaries outside the U.S. The amount of such undistributed foreign earnings was $6.9 million as of September 30, 2021. As of September 30, 2021, and 2020, $22.4 million and $19.5 million, respectively, of cash and cash equivalents was held overseas and not available to fund domestic operations without incurring taxes upon repatriation.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
 Year Ended September 30,
 202120202019
Beginning balance at October 1$123 $273 $— 
Additions based on positions related to the current year20 — — 
Additions for tax positions of prior years— — 273 
Reductions for tax positions of prior years— (150)— 
Settlements— — — 
Balance at September 30$143 $123 $273 
The Company applies the authoritative guidance related to uncertainty in income taxes. ASC 740 states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. During 2021, the Company recorded a charge of $0.1 million due to unrecognized tax benefits related to foreign operations.
The Company recognizes interest and penalties in the period in which they occur in the income tax provision. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and in foreign jurisdictions, primarily Canada and the U.K. The Company has no open income tax examinations in the U.S. and the statute of limitations for years prior to 2018 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal year 2018 may be adjusted upon examination by tax authorities if they are utilized.