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8. INCOME TAXES | 12 Months Ended
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Aug. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | NOTE 8 - INCOME TAXES We utilize FASB ASC 740-10, “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities. The components of the income tax provision for fiscal year 2019, 2018 and 2017 were as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Current |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 1,794,596 |  |  | $ | 2,370,955 |  |  | $ | 2,385,660 |
State |  |  | 426,364 |  |  |  | 460,619 |  |  |  | 217,281 |
Foreign |  |  | 51,285 |  |  |  | 104,377 |  |  |  | 28,103 |
|  |  | 2,272,245 |  |  |  | 2,935,951 |  |  |  | 2,631,044 |
Deferred |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (140,730 | ) |  |  | (1,698,201 | ) |  |  | (612,629 |
State |  |  | (158,368 | ) |  |  | (33,620 |  |  |  | 434,255 |
|  |  | (299,098 | ) |  |  | (1,731,821 | ) |  |  | (178,374 | )
Total |  | $ | 1,973,147 |  |  | $ | 1,204,130 |  |  | $ | 2,452,670 |
A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company's effective income tax rate is as follows for fiscal year 2019, 2018 and 2017:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Income tax computed at federal statutory tax rate |  |  | 21.0% |  |  |  | 25.4% |  |  |  | 34.0% |
State taxes, net of federal benefit |  |  | 4.1 |  |  |  | 4.0 |  |  |  | 3.5 |
Meals & entertainment |  |  | 0.1 |  |  |  | 0.0 |  |  |  | 0.0 |
Stock based compensation |  |  | (2.6) |  |  |  | 0.5 |  |  |  | 0.0 |
Other permanent differences |  |  | (0.7) |  |  |  | 1.2 |  |  |  | (0.5) |
Research and development credit |  |  | (2.3) |  |  |  | (2.6) |  |  |  | (3.6) |
Domestic production activities |  |  | – |  |  |  | (1.8) |  |  |  | (2.3) |
Change in deferred income taxes due to statutory rate changes |  |  | – |  |  |  | (14.8) |  |  |  | – |
Change in prior year estimated taxes |  |  | (0.9) |  |  |  | (0.0) |  |  |  | (1.3) |
Total |  |  | 18.7% |  |  |  | 11.9% |  |  |  | 29.8% |
Significant components of the Company's deferred tax assets and liabilities for income taxes for the fiscal years ended August 31, 2019 and 2018 are as follows:
|  | 2019 |  |  | 2018 |
Deferred tax assets |  |  |  |  |  |  |  |
Accrued payroll and other expenses |  | $ | 236,455 |  |  | $ | 187,220 |
Deferred revenue |  |  | 55,038 |  |  |  | 34,955 |
Capitalized merger costs |  |  | 361,103 |  |  |  | 365,801 |
Intellectual property |  |  | 9,301 |  |  |  | 11,066 |
State taxes |  |  | 89,537 |  |  |  | 96,730 |
State tax deferred |  |  | 146,815 |  |  |  | 174,800 |
Total deferred tax assets |  |  | 898,249 |  |  |  | 870,572 |
Less: Valuation allowance |  |  | – |  |  |  | – |
|  |  | 898,249 |  |  |  | 870,572 |
Deferred tax liabilities |  |  |  |  |  |  |  |
Property and equipment |  |  | (61,991 | ) |  |  | (57,636 | )
State tax deferred |  |  | (16,471 | ) |  |  | (10,701 | )
Intellectual property |  |  | (2,217,234 | ) |  |  | (2,593,292 | )
Capitalized computer software development costs |  |  | (1,334,169 | ) |  |  | (1,404,082 | )
Total deferred tax liabilities |  |  | (3,629,865 | ) |  |  | (4,065,711 | )
Net deferred tax liabilities |  | $ | (2,731,616 | ) |  | $ | (3,195,139 | )
We follow guidance issued by the FASB with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to income tax expense. Interest and penalties totaled $2,531, -0-, and $-0- for fiscal year 2019, 2018, and 2017, respectively. We file income tax returns with the IRS and various state jurisdictions and India. Our federal income tax returns for fiscal year 2015 thru 2018 are open for audit, and our state tax returns for fiscal year 2013 through 2018 remain open for audit. In addition, our California tax return for the fiscal year 2007 and fiscal year 2008 remains open with regard to R&D tax credits as a result of a previous audit for which we received a letter from the California Franchise Tax Board stating that an audit will not be conducted for those years at this time; however it may be subject to future audit. Our review of prior year tax positions using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position or results of operations.

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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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