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NOTE 12 - INCOME TAXES
 12 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
NOTE 12 - INCOME TAXES

NOTE 12 - INCOME TAXES

 

ASC topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a corporate tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as unrecognized benefits. A liability is recognized (or amount of net operating loss carryforward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC topic 740. The Company believes there are no uncertain tax positions in prior years tax filings and therefore it has not recorded a liability for unrecognized tax benefits.

 

In accordance with ASC topic 740, interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as “Interest expense, net. Penalties if incurred would be recognized as a component of “Selling, general and administrative” expenses.

 

The Company files corporate income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2016 for federal and 2015 for state.

 

The Company has recorded a deferred tax asset of $15,958,961 and a deferred tax liability of $238,316 as of June 30, 2021, primarily relating to its net Federal operating loss carryforwards of approximately $35,574,000 available to offset future taxable income through 2031. In addition the Company has state operating loss carryforwards of approximately $7,094,000 and city operating loss carryforwards of approximately $2,470,000. The net operating losses begin to expire in 2025 for federal tax and state income tax purposes.

 

Future ownership changes as determined under Section 382 of the Internal Revenue code could further limit the utilization of net operating loss carryforwards. As of June 30, 2021, no such changes in ownership have occurred.

 

The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which temporary differences become deductible or when such net operating losses can be utilized. The Company considers projected future taxable income, the regulatory environment of the industry, and tax planning strategies in making this assessment. At present, the Company believes that it is more likely than not that the benefits from certain deferred tax asset carryforwards, will not all be fully realized. In recognition of this inherent risk, a valuation allowance was established for the partial value of the deferred tax asset, which principally related to research and development tax credits.

 

A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of the remainder of the valuation.

 

The valuation allowance for deferred tax assets decreased during the year ended June 30, 2021, by approximately $3,547,000. The valuation allowance decreased by approximately $195,000 during the year ended June 30, 2020.

 

On March 27, 2020 Congress enacted the CARES Act (Coronavirus Aid, Relief and Economic Security Act). The Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding prior and future operation losses, temporary changes to prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections to prior tax legislation for tax depreciation of certain qualified improvement property and enhanced recoverability of AMT tax credits.

 

At the present time, the only impact of the CARES Act to the Company is allowing a full reimbursement of $1,342,370 of tax credits relating to the alternative minimum tax credits. The Company received the first half payment in June 2020. The balance of alternative minimum tax credits of $671,185 was received in July 2020. Previously, these credits were to be refunded over a 3 year period.

 

As we continue to monitor tax implications of the CARES Act and other state and federal stimulus tax legislation, we may make adjustments to our estimates and record additional amounts for tax assets and liabilities.

 

Components of the provision (benefit) for income taxes are as follows:

 

Components Of The Benefit Provision For Income Taxes          
   Years Ended June 30
Current:  2021  2020
Federal  $   $(187,255)
State   1,136,514    513,204 
Subtotal   1,136,514    325,949 
Deferred:          
Federal deferred taxes   2,718,046    1,953,349 
State deferred taxes   136,960    165,480 
Subtotal   2,855,006    2,118,829 
Provision (Benefit) for Income Taxes - Net  $3,991,520   $2,444,778 

 

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate as reported is as follows:

 

Reconciliation Of Federal Statutory Income Tax Rate To Company's Effective Tax Rate          
   Years Ended June 30,
   2021  2020
Taxes at federal statutory rate   21.0%   21.0%
State and local income taxes (benefit), net of federal benefit   3.3%   4.0%
Non Controlling interest   (4.9)%   (6.1)%
Expiration of tax credits   4.6%   0.2%
Return to provision adjustments   6.1%     —% 
Change in the valuation allowance   (20.0)%   0.3%
Other   12.5%   (2.1)%
Effective income tax rate   22.6%   17.3%

 

As of June 30, 2021, the Company has net operating loss (“NOL”) carryforwards of approximately $35,574,000 that will be available to offset future taxable income. The utilization of certain of the NOLs is limited by separate return limitation year rules pursuant to Section 1502 of the Internal Revenue Code.

 

The Company has, for federal income tax purposes, research and development tax credits and investments tax credits carryforwards aggregating $3,733,000. However, the realization of these credits may be limited as a result of expiring prior to their utilization. These credits can only be applied after all net operating losses have been used, which expire through 2031. As such, the Company has established a valuation reserve for anticipated unused credits of $890,000.

 

In addition, for New York State income tax purposes, the Company has tax credit carryforwards aggregating approximately $11,000 which, are accounted for under the flow-through method.

 

The Company was also under audit with New York State for income tax and was assessed additional taxes of $423,272 plus interest and penalties. These amounts are accrued for at June 30, 2021 and included in other current liabilities and were paid in August 2021.

 

Significant components of the Company’s deferred tax assets and liabilities at June 30, 2021 and 2020 are as follows:

 

Components Of Company's Deferred Tax Assets And Liabilities          
   June 30,
   2021  2020
Deferred tax assets:          
Allowance for doubtful accounts  $3,827,382   $3,946,801 
Non-deductible accruals   749,902    693,833 
Net operating carryforwards   8,285,163    13,720,637 
Tax credits   3,732,650    4,647,217 
Inventory   66,316    69,940 
Property and equipment and depreciation   187,632    168,371 
Deferred Tax Assets - gross   16,849,045    23,246,799 
Valuation allowance   (890,084)   (4,437,042)
Total deferred tax assets   15,958,961    18,809,757 
Intangibles   (238,316)   (234,106)
Total deferred tax liabilities   (238,316)   (234,106)
Net deferred tax asset  $15,720,645   $18,575,651