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16. Income Taxes

12 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Note 16: Income Taxes

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.

Income tax expense for the years ended September 30, 2018 and 2017 is as follows:

		Year Ended				Year Ended
		September 30,				September 30,
		2018				2017
Current expense:
Federal		$	(16,621	)		$	313,405
State			243,631				243,841
			227,010				557,246

Deferred expense:
Federal			3,471,657				3,397,732
State			367,526				126,841
Change in valuation allowance			340,906				–
			4,180,089				3,524,573
Total income tax expense		$	4,407,099				4,081,819

A reconciliation of the differences between the effective and statutory income tax rates for years ended September 30:

		Year Ended				Year Ended
		September 30,				September 30,
		2018				2017

Federal statutory rates		$	2,507,740			$	3,598,424
State income taxes, net of federal benefit			340,018				299,216
Permanent differences			67,579				71,908
Impact of federal rate change from Tax Act			3,037,057				–
Bargain gain - purchase accounting			(1,455,598	)			–
Property & equipment adjustment			(273,525	)			–
Federal carryfoward attributes trued up			(170,731	)			–
Change in valuation allowance			340,906				–
Other			13,653				112,271
Effective rate		$	4,407,099			$	4,081,819

At September 30, deferred income tax assets and liabilities were comprised of:

		Year Ended				Year Ended
		September 30,				September 30,
		2018				2017
Deferred income tax assets (liabilities):
Allowance for bad debts		$	229,048			$	401,867
Accrued expenses			22,664				31,183
Inventory			(8,381	)			772,656
Accrued compensation			33,670				–
Net operating loss			6,050,336				7,804,948
Tax credits			259,026				377,776
Stock compensation			2,252,254				2,982,009
Intangibles			(1,387,115	)			13,126
Property & equipment			(3,890,234	)			(3,387,298	)
Other			–				3,743
Less: Valuation allowance			(340,906	)			–
Total deferred income tax asset		$	3,220,362			$	9,000,010

The Company has federal and state net operating loss carryforwards of approximately $26.9 million and $3.7 million respectively as of September 30, 2018. The federal net operating loss amounts are subject to IRS code section 382 limitations and expire in 2030. State net operating loss amounts begin to expire in 2018. Federal and state tax credit carryforwards as of September 30, 2018 are $0.2 million and $0.1 million respectively. Due to the Tax Act, the federal tax credit carryforward is fully refundable in 2021 if not utilized before then. The 2015 through 2017 tax years are open to examination by the various federal and state jurisdictions.

The Company evaluates all available evidence to determine if a valuation allowance is needed to reduce its deferred tax assets. Management has concluded that it is more likely than not that a portion of its existing tax benefits will not be realized. Accordingly, the Company has recorded a valuation allowance of $0.3 million at September 30, 2018 to reduce its deferred tax assets.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The legislation significantly revises the U.S. corporate income tax system by, among other things, lowering corporate income tax rates from 35% to 21%, introducing new limitations on interest expense, subjecting foreign earnings in excess of an allowable return to U.S. taxation, adopting a territorial tax regime and imposing a one-time transitional tax on deemed repatriated earnings of foreign subsidiaries.

As a result of the enactment of the Tax Act, the Company’s deferred tax assets and liabilities were revalued at the lower federal income tax rate. The Company recorded net deferred income tax expense during the year ended September 30, 2018 of approximately $3.0 million.

The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of September 30, 2018. The Company’s policy is to record uncertain tax positions as a component of income tax expense.