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Note 13 - Income Taxes
 12 Months Ended
Jun. 30, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

(13)

Income Taxes

 

Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates.

 

Income tax expense for the fiscal years ended June 30 were as follows (in thousands):

 

  

2022

  

2021

  

2020

 

U.S. operations

 $135,077  $75,458  $12,690 

Non-U.S. operations

  3,044   953   1,499 

Income before income taxes

 $138,121  $76,411  $14,189 
             

U.S. operations

  34,682   15,812   4,989 

Non-U.S. operations

  159   594   300 

Total income tax expense

 $34,841  $16,406  $5,289 

Effective tax rate

  25.2%  21.5%  37.3%

 

The components of income tax expense for the fiscal years ended June 30 were as follows (in thousands):

 

  

2022

  

2021

  

2020

 

Current:

            

Federal

 $28,144  $10,617  $2,432 

State

  6,474   1,647   8 

Foreign

  575   492   325 

Total current

  35,193   12,756   2,765 

Deferred:

            

Federal

  (610)  4,462   181 

State

  674   (914)  2,368 

Foreign

  (416)  102   (25)

Total deferred

  (352)  3,650   2,524 

Total income tax expense

 $34,841  $16,406  $5,289 

 

The following is a reconciliation of our effective tax rate to the U.S. federal income tax rate for the fiscal years ended June 30 (in thousands):

 

  

2022

  

2021

  

2020

 
                         

Income tax expense at U.S. Federal statutory tax rate

 $29,005   21.0% $16,046   21.0% $2,980   21.0%

Increase (decrease) in income taxes resulting from:

                        

State and local income taxes, net of U.S. federal income benefit

  5,208   3.8%  2,565   3.4%  159   1.1%

Change in valuation allowance

  (591)  -0.4%  (2,565)  -3.4%  2,534   17.9%

Foreign derived intangible income ("FDII") deduction

  (289)  -0.2%  (130)  -0.2%  -   0.0%

Unrecognized tax benefits

  390   0.3%  48   0.1%  (215)  -1.5%

Share-based compensation

  189   0.1%  72   0.1%  17   0.1%

Other, net

  929   0.6%  370   0.5%  (186)  -1.3%

Actual income tax expense (and corresponding effective tax rate)

 $34,841   25.2% $16,406   21.5% $5,289   37.3%

 

The significant components of deferred tax assets recorded within the consolidated balance sheet were as follows (in thousands):

 

  

June 30,

 
  

2022

  

2021

 

Leases

 $28,621  $30,692 

Employee compensation accruals

  2,167   2,131 

Share-based compensation

  271   727 

Net operating loss carryforwards

  340   1,420 

Property, plant and equipment

  1,309   1,446 

Other

  3,321   2,263 

Subtotal deferred tax assets

  36,029   38,679 

Less: Valuation allowance

  -   (593)

Total deferred tax assets

 $36,029  $38,086 

 

The significant components of deferred tax liabilities recorded within the consolidated balance sheet were as follows (in thousands):

 

  

June 30,

 
  

2022

  

2021

 

Operating lease right-of-use assets

 $24,965  $26,811 

Intangible assets other than goodwill

  9,041   8,979 

Commissions

  5,006   5,744 

Other

  615   502 

Total deferred tax liabilities

 $39,627  $42,036 

 

Deferred tax balances are classified in the consolidated balance sheets as follows (in thousands):

 

  

June 30,

 
  

2022

  

2021

 

Other assets

 $820  $1,078 

Other non-current liabilities

  (4,418)  (5,028)

Total net deferred tax asset (liability)

 $(3,598) $(3,950)

 

We evaluate our deferred taxes to determine if the “more likely than not” standard of evidence has not been met thereby supporting the need for a valuation allowance. The evaluation of the amount of net deferred tax assets expected to be realized necessarily involves forecasting the amount of taxable income that will be generated in future years. We have forecasted future results using estimates management believes to be reasonable. Our forecasts are based on our best estimate of expected trends resulting from certain leading economic indicators. The realization of deferred income tax assets is dependent on future events. Actual results inevitably will vary from management's forecasts which  may be impacted by the ongoing COVID-19 pandemic, possibly resulting in a sustained economic downturn, or significantly extended economic recovery. Such variances could result in adjustments to the valuation allowance on deferred tax assets in future periods, and such adjustments could be material to the financial statements. A valuation allowance must be established for deferred tax assets when it is more likely than not that assets will not be realized.

 

At  June 30, 2022, there was no valuation allowance in place against the Company’s tax assets. The valuation allowance previously recorded of $0.6 million against the retail segment’s Canadian tax assets was removed during fiscal 2022 as it was now considered more likely than not to be realized based on the performance and related positive earnings generated by the retail segment’s Canadian operations over the past 36 months. At June 30, 2021, a valuation allowance of $0.6 million was in place against the retail segment’s Canadian tax assets.

 

The deferred tax assets at June 30, 2022 associated with net operating loss carryforwards and the related expiration dates are as follows (in thousands):

 

  

Deferred

  

Net Operating Loss

 
  

Tax Assets

  

Carryforwards

 

Various U.S. state net operating losses, expiring between 2025 and 2040

 $340  $3,953 

 

Uncertain Tax Positions

 

We recognize interest and penalties related to income tax matters as a component of income tax expense. If the $2.5 million of unrecognized tax benefits and related interest and penalties as of  June 30, 2022 were recognized, approximately $2.0 million would be recorded as a benefit to income tax expense.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits including related interest and penalties is as follows (in thousands):

 

  

June 30,

 
  

2022

  

2021

 

Beginning balance

 $1,984  $1,933 

Additions for tax positions related to the current year

  853   452 

Additions for tax positions of prior years

  94   117 

Reductions resulting from a lapse of the applicable statute of limitations

  (457)  (518)

Ending balance

 $2,474  $1,984 

 

It is reasonably possible that various issues relating to approximately $0.5 million of the total gross unrecognized tax benefits as of  June 30, 2022 will be resolved within the next twelve months as exams are completed or statutes expire. If recognized, approximately $0.4 million of unrecognized tax benefits would reduce our income tax expense in the period realized.

 

The Company conducts business globally and, as a result, the Company or one or more of its subsidiaries files income tax returns in the United States, various state, and foreign jurisdictions. In the normal course of business, the Company is subject to examination by the taxing authorities in such major jurisdictions as the United States, Canada, Mexico and Honduras. As of  June 30, 2022, the Company and certain subsidiaries are currently under audit from 2017 through 2020 in the United States. While the amount of uncertain tax benefits with respect to the entities and years under audit may change within the next twelve months, it is not anticipated that any of the changes will be significant.