XML 30 R16.htm IDEA: XBRL DOCUMENT

Income Taxes

12 Months Ended

Sep. 30, 2017

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

The provision for income taxes consisted of the following (in thousands):

		Years Ended September 30,
		2017				2016				2015
Current
Federal		$	2,989			$	260			$	894
State and local			1,097				970				335
Total current income tax expense			4,086				1,230				1,229

Deferred
Federal			1,545				1,110				3,771
State and local			728				33				111
Total deferred income tax expense			2,273				1,143				3,882

Total income tax expense		$	6,359			$	2,373			$	5,111

See Note 3 in relation to revision of prior year financial statements.

The Company and its subsidiaries do not operate in tax jurisdictions outside of the United States.

Income tax expense differs from the “expected” income tax expense computed by applying the U.S. federal statutory rate to earnings before income taxes for the years ended September 30 as a result of the following (in thousands):

		Years Ended September 30,
		2017				2016				2015
Computed expected income tax expense		$	4,979			$	4,366			$	4,759
State income taxes, net of federal benefit			291				730				221
Transfer of deferred tax liabilities with subsidiaries sold			-				(841	)			-
Permanent differences			108				(109	)			131
Change in deferred tax liability rate			1,329				-				-
Reserve for uncertain tax position			406				240				-
Tax credits			(564	)			(2,013	)			-
Other			(190	)			-
Total income tax expense		$	6,359			$	2,373			$	5,111

During the fiscal year ended September 30, 2016 the Company deconsolidated three subsidiaries. Two of these subsidiaries were 100 percent owned subsidiaries, 100 percent of the stock of both of these subsidiaries were sold to third parties. The third subsidiary was a 51 percent owned subsidiary that was accounted for under the consolidated method; 31 percent of the 51 percent ownership of the stock was sold during the year to a third party, and the investment is now accounted for under the cost method. In accordance with U.S. GAAP, the company has elected to account for the deferred taxes on the inside basis differences of all three deconsolidated subsidiaries as a component of the gain or loss on the sale of the shares. All outside basis differences in the investment in subsidiaries stock are accounted for as a component of the tax provision.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):

		September 30,
		2017				2016
Deferred tax assets:
Patron tax		$	1,954			$	2,074
Other			231				2,172
			2,185				4,246
Deferred tax liabilities:
Intangibles			(18,549	)			(19,034	)
Property and equipment			(9,177	)			(8,478	)
			(27,726	)			(27,512	)
Net deferred tax liability		$	(25,541	)		$	(23,266	)

For the year ended September 30, 2016, income tax expense includes a tax benefit in the amount of $2.0 million representing the net amount to be realized from fiscal year 2016 and from amending certain prior year federal tax returns to take the available FICA tip tax credits which were not taken in prior years. The Company will continue to utilize FICA tip credits in future tax filings.

Included in the Company’s deferred tax liabilities at September 30, 2017 and 2016 is approximately $15.9 million and $16.3 million, respectively, representing the tax effect of indefinite-lived intangible assets from club acquisitions which are not deductible for tax purposes. These deferred tax liabilities will remain in the Company’s consolidated balance sheet until the related clubs are sold.

The Company may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. We recognize accrued interest related to unrecognized tax benefits as a component of accrued liabilities. We recognize penalties related to unrecognized tax benefits as a component of selling, general and administrative expenses, and recognize interest accrued related to unrecognized tax benefits in interest expense. During the year ended September 30, 2017, the Company has accrued $865,000 (all related to previous years’ taxes) in uncertain state tax positions. In fiscal 2017, the Company also accrued $223,000 and $266,000 in penalties and interest, respectively, related to uncertain tax positions.

The following table shows the changes in the Company’s uncertain tax positions (in thousands):

		Years Ended September 30,
		2017				2016				2015
Balance at beginning of year		$	240			$	-			$	-
Additions for tax positions of prior years			625				240				-

Balance at end of year		$	865			$	240			$	-

The full balance of $865,000, if recognized, would affect the Company’s annual effective tax rate, net of any federal tax benefits. The Company does not expect any changes that will significantly impact its uncertain tax positions within the next twelve months.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states. Fiscal year ended September 30, 2016 remains open to tax examination. The Company’s federal income tax returns for the years ended September 30, 2015, 2014 and 2013 are currently being examined by the Internal Revenue Service. The Company is also being examined for state income taxes, the settlement of which may occur within the next twelve months.