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Income Taxes

6 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

A summary of our total income tax expense and effective income tax rate for the three and six months ended December 31, 2019 and 2018 is as follows:

		Three Months Ended December 31,								Six Months Ended December 31,
		2019				2018				2019				2018
Income (loss) before income taxes		$	1,090,986			$	(7,127	)		$	(135,853	)		$	(768,978	)
Income tax provision (benefit)		$	321,869			$	(23,403	)		$	470,187			$	(202,363	)
Effective income tax rate			30%				328%				-346%				26%

The difference between our effective tax rates in the periods presented above and the federal statutory rate is due to the mix of taxable income and losses generated in our various tax jurisdictions, which include the United States (the “U.S.”), the People’s Republic of China, and the Republic of Latvia. Income tax expense for the three and six months ended December 31, 2019 was primarily related to income taxes from our operations in China, as we are not recording additional income tax benefits on losses in the U.S. jurisdiction based on our assessment of the valuation allowance position on our U.S. net deferred tax assets. For the three and six months ended December 31, 2018, we recorded a net income tax benefit, comprised of a tax benefit on losses in the U.S. jurisdiction, offset by tax expense on income generated in China. Income tax expense for the three and six months ended December 31, 2019 also includes withholding taxes accrued on a $2 million intercompany dividend declared in December 2019 by LightPath Optical Instrumentation (Zhenjiang) Co., Ltd. (“LPOIZ”), which dividend will be paid to us, as its parent company.

We record net deferred tax assets to the extent we believe it is more likely than not that some portion or all of these assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 2019 and June 30, 2019, we have provided for a valuation allowance against our net deferred tax assets to reduce the net deferred tax assets to the amount we estimate is more-likely-than-not to be realized. Our net deferred tax asset consists primarily of U.S. net operating loss (“NOL”) carryforward benefits, and federal and state tax credits with indefinite carryover periods.

U.S. Federal and State Income Taxes

Our U.S. federal and state statutory income tax rate is estimated to be 25%. Based on our current assessment of the valuation allowance position on our net deferred tax assets, no tax benefit is expected to be recorded on pre-tax losses generated in the U.S.

Income Tax Law of the People’s Republic of China

Our Chinese subsidiaries, LightPath Optical Instrumentation (Shanghai) Co., Ltd. (“LPOI”) and LPOIZ, are governed by the Income Tax Law of the People’s Republic of China. As of December 31, 2019, LPOI and LPOIZ were subject to statutory income tax rates of 25% and 15%, respectively. In December 2019, we declared an intercompany dividend of $2 million from LPOIZ, payable to us as its parent company. Accordingly, we accrued Chinese withholding taxes of $200,000 associated with the dividend. Of the $2 million dividend, $1 million was paid to us during the quarter ended December 31, 2019, from which taxes of $100,000 were withheld and paid. An additional $100,000 of withholding taxes were accrued as of December 31, 2019, and will be withheld and paid at a future date, when the remaining $1 million is paid to us. Other than these withholding taxes, this intercompany dividend has no impact on our unaudited Condensed Consolidated Finanacial Statements. This dividend is from earnings accumulated prior to January 1, 2019. We currently intend to permanently invest earnings generated after January 1, 2019 from LPOIZ and, therefore, have not provided for future Chinese withholding taxes on such related earnings.

Law of Corporate Income Tax of Latvia

Our Latvian subsidiary, ISP Optics Latvia, SIA (“ISP Latvia”), is governed by the Law of Corporate Income Tax of Latvia. Effective January 1, 2018, the Republic of Latvia enacted tax reform with the following key provisions: (i) corporations are no longer subject to income tax, but are instead subject to a distribution tax on distributed profits (or deemed distributions, as defined) and (ii) the rate of tax was changed to 20%; however, distribution amounts are first divided by 0.8 to arrive at the profit before tax amount, resulting in an effective tax rate of 25%. As a transitional measure, distributions of earnings prior to January 1, 2018 are not subject to tax if declared prior to December 31, 2019. ISP Latvia has declared an intercompany dividend to be paid to ISP, its U.S. parent company. Distributions of this dividend will be from earnings prior to January 1, 2018 and, therefore, will not be subject to tax. We currently do not intend to distribute any earnings generated after January 1, 2018. If, in the future, we change such intention, we will accrue distribution taxes, if any, as profits are generated.