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Note 13 - Income Taxes | 12 Months Ended
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Jun. 30, 2023
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):
|  | 2023 |  |  | 2022 |  |  | 2021 |
U.S. operations |  | $ | 138,941 |  |  | $ | 135,077 |  |  | $ | 75,458 |
Non-U.S. operations |  |  | 2,084 |  |  |  | 3,044 |  |  |  | 953 |
Income before income taxes |  | $ | 141,025 |  |  | $ | 138,121 |  |  | $ | 76,411 |
U.S. operations |  | $ | 34,679 |  |  | $ | 34,682 |  |  | $ | 15,812 |
Non-U.S. operations |  |  | 539 |  |  |  | 159 |  |  |  | 594 |
Total income tax expense |  | $ | 35,218 |  |  | $ | 34,841 |  |  | $ | 16,406 |
Effective tax rate |  |  | 25.0 | % |  |  | 25.2 | % |  |  | 21.5 | %
The components of income tax expense for the fiscal years ended June 30 were as follows (in thousands):
|  | 2023 |  |  | 2022 |  |  | 2021 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 29,139 |  |  | $ | 28,144 |  |  | $ | 10,617 |
U.S. State and Local |  |  | 7,076 |  |  |  | 6,474 |  |  |  | 1,647 |
Foreign |  |  | 185 |  |  |  | 575 |  |  |  | 492 |
Total current |  |  | 36,400 |  |  |  | 35,193 |  |  |  | 12,756 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (1,362 | ) |  |  | (610 | ) |  |  | 4,462 |
U.S. State and Local |  |  | (174 | ) |  |  | 674 |  |  |  | (914 | )
Foreign |  |  | 354 |  |  |  | (416 | ) |  |  | 102 |
Total deferred |  |  | (1,182 | ) |  |  | (352 | ) |  |  | 3,650 |
Total income tax expense |  | $ | 35,218 |  |  | $ | 34,841 |  |  | $ | 16,406 |
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):
|  | 2023 |  |  | 2022 |  |  | 2021 |
Income tax expense at U.S. Federal statutory tax rate |  | $ | 29,616 |  |  |  | 21.0 | % |  | $ | 29,005 |  |  |  | 21.0 | % |  | $ | 16,046 |  |  |  | 21.0 | %
Increase (decrease) in income taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State and local income taxes, net of U.S. federal income benefit |  |  | 5,203 |  |  |  | 3.7 | % |  |  | 5,208 |  |  |  | 3.8 | % |  |  | 2,565 |  |  |  | 3.4 | %
Change in valuation allowance |  |  | - |  |  |  | - |  |  |  | (591 | ) |  |  | (0.4 | %) |  |  | (2,565 | ) |  |  | (3.4 | %)
Foreign derived intangible income ("FDII") deduction |  |  | 428 |  |  |  | 0.3 | % |  |  | (289 | ) |  |  | (0.2 | %) |  |  | (130 | ) |  |  | (0.2 | %)
Unrecognized tax benefits |  |  | (229 | ) |  |  | (0.2 | %) |  |  | 390 |  |  |  | 0.3 | % |  |  | 48 |  |  |  | 0.1 | %
Share-based compensation |  |  | 5 |  |  |  | - |  |  |  | 189 |  |  |  | 0.1 | % |  |  | 72 |  |  |  | 0.1 | %
Other, net |  |  | 195 |  |  |  | 0.2 | % |  |  | 929 |  |  |  | 0.6 | % |  |  | 370 |  |  |  | 0.5 | %
Total income tax expense (and corresponding effective tax rate) |  | $ | 35,218 |  |  |  | 25.0 | % |  | $ | 34,841 |  |  |  | 25.2 | % |  | $ | 16,406 |  |  |  | 21.5 | %
The significant components of deferred tax assets recorded within the consolidated balance sheet were as follows (in thousands):
|  | June 30, |
|  | 2023 |  |  | 2022 |
Lease liabilities |  | $ | 32,411 |  |  | $ | 28,621 |
Employee compensation |  |  | 2,218 |  |  |  | 2,167 |
Share-based compensation |  |  | 139 |  |  |  | 271 |
Net operating loss carryforwards |  |  | 318 |  |  |  | 340 |
Property, plant and equipment |  |  | 151 |  |  |  | 1,309 |
Other |  |  | 3,802 |  |  |  | 3,321 |
Total deferred tax assets |  | $ | 39,039 |  |  | $ | 36,029 |
The significant components of deferred tax liabilities recorded within the consolidated balance sheet were as follows (in thousands):
|  | June 30, |
|  | 2023 |  |  | 2022 |
Operating lease right-of-use assets |  | $ | 28,724 |  |  | $ | 24,965 |
Intangible assets other than goodwill |  |  | 9,047 |  |  |  | 9,041 |
Commissions |  |  | 3,032 |  |  |  | 5,006 |
Other |  |  | 652 |  |  |  | 615 |
Total deferred tax liabilities |  | $ | 41,455 |  |  | $ | 39,627 |
Deferred tax balances are classified in the consolidated balance sheets as follows (in thousands):
|  | June 30, |
|  | 2023 |  |  | 2022 |
Other assets |  | $ | 640 |  |  | $ | 820 |
Other non-current liabilities |  |  | (3,056 | ) |  |  | (4,418 | )
Total net deferred tax asset (liability) |  | $ | (2,416 | ) |  | $ | (3,598 | )
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 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, 2023, 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 then 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. The deferred tax assets as of June 30, 2023 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 2031 and 2040 |  | $ | 208 |  |  | $ | 2,689 |
Canada net operating loss, expiring 2039 |  | $ | 110 |  |  | $ | 417 |
Uncertain Tax Positions We recognize interest and penalties related to income tax matters as a component of income tax expense. As of June 30, 2023, we had gross unrecognized tax benefits totaling $3.0 million, an increase from $2.5 million as of June 30, 2022. We had approximately $0.3 million accrued for interest as of June 30, 2023 and 2022, respectively. If the $3.0 million of unrecognized tax benefits and related interest as of June 30, 2023 were recognized, approximately $2.4 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 is as follows (in thousands):
|  | June 30, |
|  | 2023 |  |  | 2022 |
Beginning balance |  | $ | 2,474 |  |  | $ | 1,984 |
Additions for tax positions related to the current year |  |  | 817 |  |  |  | 853 |
Additions for tax positions of prior years |  |  | 170 |  |  |  | 94 |
Reductions resulting from a lapse of the applicable statute of limitations |  |  | (461 | ) |  |  | (457 | )
Ending balance |  | $ | 3,000 |  |  | $ | 2,474 |
It is reasonably possible that various issues relating to approximately $0.3 million of the total gross unrecognized tax benefits as of June 30, 2023 will be resolved within the next twelve months as exams are completed or statutes expire. If recognized, approximately $0.3 million of unrecognized tax benefits would reduce our income tax expense in the period realized. While the amount of uncertain tax benefits with respect to the entities may change within the next twelve months, it is not anticipated that any of the changes will be significant. 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, local, and foreign jurisdictions. In the normal course of business, our tax filings are subject to examination by federal, state and foreign taxing authorities. As of June 30, 2023, our U.S. federal income tax return for the tax year of 2019 through the current period remain subject to examination. In addition, we conduct business in various states, which are subject to audit from fiscal year 2018 to the current year. Our foreign operations in Canada, Mexico and Honduras remain subject to examination for the 2018 tax year through to the current period.

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