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Note 17 - Income Taxes | 12 Months Ended
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Mar. 31, 2017
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
17. | INCOME TAXES
The components of income tax expense were as follows:
|  | Year Ended March 31, |
|  | 2017 |  |  | 2016 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | 1,124,000 |  |  | $ | 1,817,000 |
State |  |  | 128,000 |  |  |  | 316,000 |
Foreign |  |  | 132,000 |  |  |  | 171,000 |
Total current |  |  | 1,384,000 |  |  |  | 2,304,000 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | (592,000 | ) |  |  | 152,000 |
State |  |  | (67,000 | ) |  |  | (61,000 | )
Total deferred |  |  | (659,000 | ) |  |  | 91,000 |
Total |  | $ | 725,000 |  |  | $ | 2,395,000 |
Income tax expense was different from the amount computed by applying the statutory federal income tax rate of 34% as shown in the following table:
|  | Year Ended March 31, |
|  | 2017 |  |  | 2016 |
Expected Federal income tax expense U.S. statutory rate |  | $ | (1,434,000 | ) |  |  | 34.0 | % |  | $ | 2,092,000 |  |  |  | 34.0 | %
State income taxes, net of Federal benefit |  |  | 40,000 |  |  |  | -0.9 | % |  |  | 169,000 |  |  |  | 2.7 | %
Permanent differences, other |  |  | 156,000 |  |  |  | -3.7 | % |  |  | 47,000 |  |  |  | 0.8 | %
Dividend received deduction |  |  | (302,000 | ) |  |  | 7.2 | % |  |  | - |  |  |  | 0.0 | %
Section 831(b) benefit |  |  | (281,000 | ) |  |  | 6.7 | % |  |  | (316,000 | ) |  |  | -5.1 | %
Change in valuation allowance |  |  | 3,868,000 |  |  |  | -91.8 | % |  |  | 557,000 |  |  |  | 9.0 | %
Domestic production activities deductions |  |  | (64,000 | ) |  |  | 1.5 | % |  |  | (193,000 | ) |  |  | -3.1 | %
Income attributable to minority interest - Contrail Aviation |  |  | (45,000 | ) |  |  | 1.1 | % |  |  | - |  |  |  | 0.0 | %
Deferred benefit for outside basis difference recorded on Delphax CFC's |  |  | (1,015,000 | ) |  |  | 24.1 | % |  |  | - |  |  |  | 0.0 | %
Deferred state income taxes, net of Federal benefit for Delphax |  |  | (102,000 | ) |  |  | 2.4 | % |  |  | - |  |  |  | 0.0 | %
Other differences, net |  |  | (96,000 | ) |  |  | 2.3 | % |  |  | 39,000 |  |  |  | 0.6 | %
Income tax expense |  | $ | 725,000 |  |  |  | -17.1 | % |  | $ | 2,395,000 |  |  |  | 38.9 | %
Delphax, which generated losses for the periods ended March 31, 2017 and March 31, 2016 is not included in Air T, Inc.’s consolidated tax return, accounts for $3,212,000 and $557,000 of the above valuation allowance effect for each period, respectively. Deferred tax assets and liabilities consisted of the following as of March 31:
|  | Year Ended March 31, |
|  | 2017 |  |  | 2016 |
Inventory reserves |  | $ | 785,000 |  |  | $ | 504,000 |
Accrued vacation |  |  | 475,000 |  |  |  | 439,000 |
Stock option compensation |  |  | 108,000 |  |  |  | 141,000 |
Property and equipment |  |  | 169,000 |  |  |  | - |
Warranty reserve |  |  | 39,000 |  |  |  | 74,000 |
Accounts and notes receivable reserve |  |  | 290,000 |  |  |  | 181,000 |
Employee severance reserve |  |  | 460,000 |  |  |  | - |
Net operating loss carryforwards |  |  | 6,461,000 |  |  |  | 5,353,000 |
Federal/Canadian tax credits |  |  | 4,648,000 |  |  |  | 4,784,000 |
263A inventory capitalization |  |  | 10,000 |  |  |  | 60,000 |
Unrealized gains/losses and outside basis difference for CFC's |  |  | 1,995,000 |  |  |  | - |
Intangibles |  |  | 43,000 |  |  |  | - |
Other |  |  | 78,000 |  |  |  | 112,000 |
Total deferred tax assets |  |  | 15,561,000 |  |  |  | 11,648,000 |
Deferred revenue |  |  | (35,000 | ) |  |  | (52,000 | )
Prepaid expenses |  |  | (505,000 | ) |  |  | (563,000 | )
Property and equipment |  |  | - |  |  |  | (70,000 | )
Intangibles |  |  | - |  |  |  | (388,000 | )
Gain on marketable securities (OCI) |  |  | (94,000 | ) |  |  | - |
Outside basis difference |  |  | (34,000 | ) |  |  | - |
Total deferred tax liabilities |  |  | (668,000 | ) |  |  | (1,073,000 | )
Net deferred tax asset (liability) |  | $ | 14,893,000 |  |  | $ | 10,575,000 |
Less valuation allowance |  |  | (14,698,000 | ) |  |  | (10,830,000 | )
Net deferred tax asset (liability) after valuation allowance |  | $ | 195,000 |  |  | $ | (255,000 | )
The deferred tax items are reported on a net current and non-current basis in the accompanying fiscal 2017 and 2016 consolidated balance sheets according to the classification of the underlying asset and liability. The Company accounts for uncertain tax positions in accordance with accounting principles generally accepted in the United States of America. The Company has analyzed filing positions in all of the federal, state and international jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The periods subject to examination for the Company ’s federal return are the fiscal 2013 through 2015 tax years. The periods subject to examination for the Company’s state returns are generally the fiscal 2012 through 2015 tax years. As of March 31, 2017 and 2016, the Company did not have any unrecognized tax benefits. The Company does not believe there will be any material changes in unrecognized tax positions over the next twelve months. It is the Company ’s policy to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of March 31, 2017 and 2016, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the years ended March 31, 2017 and 2016. As described in Note 8, effective on November 24, 2015, Air T, Inc. purchased interests in Delphax. With an equity investment level by the Company of approximately 38%, Delphax is required to continue filing a separate United States corporate tax return. Furthermore, Delphax has three foreign subsidiaries located in Canada, France, and the United Kingdom which file tax returns in those jurisdictions. With few exceptions, Delphax is no longer subject to examinations by income tax authorities for tax years before 2012. Delphax maintains a September 30 fiscal year. As of September 30, 2016, Delphax and its subsidiaries had estimated foreign and domestic tax loss carryforwards of $6.3 million and $13.2 million, respectively. As of that date, they had estimated foreign res earch and development credit carryforwards of $4.3 million, which are available to offset future income tax. The credits and net operating losses expire in varying amounts beginning in the year 2023. Domestic alternative minimum tax credits of approximately $311,000 are available to offset future income tax with no expiration date. The Company does not believe its investment in Delphax by Air T resulted in an ownership change for purposes of Section 382. Should there be an ownership change for purposes of Section 382 or any equivalent foreign tax rules, the utilization of the previously mentioned carryforwards will be significantly limited. In the event of bankruptcy proceedings involving Delphax or Delphax Canada, any remaining tax attributes, including net operating losses and credit carryforwards in each respective jurisdiction will be lost. The Company has recorded an outside basis difference in the stock of these entities of $2.9 million which is the estimated loss that will be recognized in the United States upon their liquidation. See further information regarding Delphax Canada developments in Notes 8, 10, and 24. The provisions of ASC 740 require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets will be recovered. In accounting for the Delphax tax attributes, the Company has established a full valuation allowance of 14.0 million at March 31, 2017 and 10.8 million at March 31, 2016. The cumulative losses incurred by Delphax in recent years was the primary basis for the Company ’s determination that a full valuation allowance should be established against Delphax’s net deferred tax assets.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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