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Note 3 - Income Taxes | 12 Months Ended
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Sep. 30, 2018
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 3. INCOME TAXES The benefit from income taxes consists of the following:
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (209,000 | ) |  | $ | (2,570,000 | ) |  | $ | (268,000 | )
State |  |  | (90,000 | ) |  |  | (6,000 | ) |  |  | (30,000 | )
|  |  | (299,000 | ) |  |  | (2,576,000 | ) |  |  | (298,000 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (18,577,000 | ) |  |  | (3,854,000 | ) |  |  | (1,369,000 | )
State |  |  | (664,000 | ) |  |  | (720,000 | ) |  |  | (268,000 | )
|  |  | (19,241,000 | ) |  |  | (4,574,000 | ) |  |  | (1,637,000 | )
|  | $ | (19,540,000 | ) |  | $ | (7,150,000 | ) |  | $ | (1,935,000 | )
The difference between the statutory federal income tax rate and the Company’s effective rate is summarized below:
|  | 2018 |  |  | 2017 |  |  | 2016 |
Statutory federal income tax rate |  |  | 24.3 | % |  |  | 34.0 | % |  |  | 34.0 | %
State franchise taxes (net of federal tax benefit) |  |  | 5.7 |  |  |  | 6.2 |  |  |  | 5.2 |
Revalue of deferred taxes due to federal rate change |  |  | 176.0 |  |  |  | --- |  |  |  | --- |
Effect of federal rate change on beginning net deferred tax liabilities |  |  | (34.0 | ) |  |  | --- |  |  |  | --- |
Business meals/gifts/other permanent differences |  |  | (0.4 | ) |  |  | (0.8 | ) |  |  | (2.3 | )
Domestic production activity deduction and deferred revenue |  |  | (0.9 | ) |  |  | --- |  |  |  | --- |
Dividends received deduction |  |  | 5.8 |  |  |  | 10.0 |  |  |  | 24.5 |
Reversal of uncertain and unrecognized tax position |  |  | --- |  |  |  | 37.6 |  |  |  | --- |
Penalties for uncertain and unrecognized tax benefits |  |  | --- |  |  |  | 2.0 |  |  |  | --- |
Prior year true-up |  |  | (1.8 | ) |  |  | 1.0 |  |  |  | (2.0 | )
Foreign tax credits |  |  | --- |  |  |  | 2.0 |  |  |  | 4.0 |
Effect of state rate change on beginning balance of deferred tax liabilities |  |  | (0.7 | ) |  |  | (0.3 | ) |  |  | 1.4 |
Others |  |  | (1.7 | ) |  |  | (3.0 | ) |  |  | 0.2 |
Effective tax rate |  |  | 172.3 | % |  |  | 88.7 | % |  |  | 65.0 | %
The Company’s deferred income tax assets and liabilities were comprised of the following:
|  | 2018 |  |  | 2017 |
Deferred tax assets attributable to: |  |  |  |  |  |  |  |
Accrued liabilities, including supplemental compensation and vacation pay accrual |  | $ | (106,000 | ) |  | $ | (69,000 | )
Impairment losses on investments |  |  | 2,215,000 |  |  |  | 1,376,000 |
Bad debt reserves not yet deductible |  |  | 42,000 |  |  |  | 62,000 |
Depreciation and amortization |  |  | 4,446,000 |  |  |  | 5,977,000 |
Deferred revenues |  |  | 745,000 |  |  |  | 1,431,000 |
Net operating losses |  |  | 4,643,000 |  |  |  | 3,100,000 |
Credits and other |  |  | 455,000 |  |  |  | 1,303,000 |
Total deferred tax assets |  |  | 12,440,000 |  |  |  | 13,180,000 |
Deferred tax liabilities attributable to: |  |  |  |  |  |  |  |
Unrealized gains on investments |  |  | (42,151,000 | ) |  |  | (64,550,000 | )
Goodwill |  |  | (290,000 | ) |  |  | (311,000 | )
Total deferred tax liabilities |  |  | (42,441,000 | ) |  |  | (64,861,000 | )
Net deferred income taxes |  | $ | (30,001,000 | ) |  | $ | (51,681,000 | )
The Tax Act reduced the maximum corporate income tax rate from 35% to 21%, effective January 1, 2018. The Company has completed its review of the Tax Act. The impact to its financial statements is as follows: (i) current income tax expense or benefit is calculated using a blended rate of 24.28% pursuant to IRC Section 15, (ii) deferred tax expense includes a discrete net tax benefit of approximately $16 million resulting from a revaluation of deferred tax assets and liabilities to the expected tax rate that will be applied when temporary differences are expected to reverse, (iii) items that were expected to reverse during fiscal 2018 were valued at the blended rate of 24.28% while temporary differences that will reverse after fiscal 2018 were valued at the 21% rate, and (iv) approximately $20 million of the revaluation of deferred taxes relates to items that were initially recorded as accumulated other comprehensive income (“AOCI”). This revaluation of approximately $20 million was recorded as a component of income tax expense or benefit in continuing operations. During fiscal 2018, the Company recorded an income tax benefit of $19,540,000 on a pretax loss of $11,339,000. The effective tax rate (before the discrete Tax Act item discussed above) was greater than the statutory rate primarily due to the dividends received deduction which increases the loss for tax purposes. On a pretax loss of $8,068,000 for fiscal 2017, the Company recorded an income tax benefit of $7,150,000 which included a reversal of an accrued liability of approximately $2,665,000 for uncertain and unrecognized tax benefits relating to an acquisition in fiscal 2013. The Internal Revenue Service (“IRS”) concluded its examination of the Company’s fiscal 2014 income tax return with no proposed changes to the tax position that gave rise to this liability. As a result, this liability was reversed along with the related accrued interest and penalty expense of $743,000. In addition, a deferred tax liability, in the amount of $352,000, relating to temporary differences that would only exist if the uncertain tax position was never recognized, was reversed. The effective tax rate (before the discrete IRS item) was greater than the statutory rate mainly resulting from the dividends received deduction. On a pretax loss of $2,978,000 for fiscal 2016, the Company recorded an income tax benefit of $1,935,000. The effective tax rate was greater than the statutory rate mainly resulting from the dividends received deduction. The Company’s effective tax rate was 172%, 89% and 65% for fiscal 2018, 2017 and 2016, respectively. The Company files consolidated federal income tax returns in the United States and with various state jurisdictions and is no longer subject to examinations for fiscal years before fiscal 2015 with regard to federal income taxes and fiscal 2013 for state income taxes. The Company has federal and state income tax net operating losses (“NOLs”). A portion of the fiscal 2017 federal and state NOLs were carried back to previous years. As of September 30, 2018, the Company had federal, California and other state NOL carryforwards of $18.5 million, $6.2 million and 4.3 million, respectively. These NOLs will expire at various dates from fiscal 2036 through 2038, as follows:
Fiscal year ended |  | Federal NOL |  |  | California NOL |  |  | Other State NOL |
|  | (in millions) |
September 30, 2036 |  | $ | .8 |  |  | $ | --- |  |  | $ | --- |
September 30, 2037 |  |  | 6.5 |  |  |  | .7 |  |  |  | 1.5 |
September 30, 2038 |  |  | 11.2 |  |  |  | 5.5 |  |  |  | 2.8 |
The Company believes it is more likely than not that the benefit of these NOLs will be realized in the future. Consequently, the Company has not provided a valuation allowance.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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