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Income taxes
 6 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income taxes

Note 14 – Income taxes

 

In addition to corporate income taxes in the United States, upon completion of the acquisition of Anivia in February 2022, the Company is subject to corporate income taxes in PRC. Anivia and its subsidiaries are subject to BVI or Hong Kong income taxes but did not have any operations for the six months ended December 31, 2023 and 2022. DHS, the operating VIE of Anivia, is considered a Controlled Foreign Corporation (CFC) defined under IRC Sec. 957(a) since the Company indirectly owns more than 50% voting control of DHS as a result of the Transfer Agreement. Therefore, DHS is subject to the Global Intangible Low-Taxed Income (or GILTI) Tax. DHS is subject to 5% tax rate in PRC. The Company made an election to apply the GILTI high-tax exclusion for DHS under the Final Regulations (T.D. 9902). As the result of the election, no GILTI tax was recorded as of December 31, 2023 and 2022. In addition, as a result of the acquisition, the Company booked a $6,094,144 of goodwill. Since the acquisition was a stock acquisition, the Goodwill is not deductible for tax purposes.

 

For the three and six months ended December 31, 2023, as a result of the Company’s inability to establish a reliable estimate for annual effective tax rate, the Company calculated income tax expense using the actual effective tax rate year to date, as opposed to the estimated annual effective tax rate, as provided in Accounting Standards Codification (ASC) 740-270-30-18.

 

The income tax provision for the three and six months ended December 31, 2023 and 2022 consisted of the following:

                
   Three Months Ended December 31,   Six Months Ended December 31, 
   2023   2022   2023   2022 
Current:                
Federal  $1,705   $280,781   $–   $280,781 
States   (904)   (123)   11,566    9,799 
Foreign   –    –    –    – 
Total current income tax provision   801    280,658    11,566    290,580 
                     
Deferred:                    
Federal   (555,981)   (1,090,318)   (840,629)   (1,259,785)
States   (133,943)   (203,562)   (200,567)   (306,707)
Foreign   184    (34,527)   64,809    (219,633)
Total deferred taxes   (689,740)   (1,328,407)   (976,387)   (1,786,125)
                     
Total provision for income taxes  $(688,939)  $(1,047,749)  $(964,821)  $(1,495,545)

 

The Company is subject to U.S. federal income tax as well as state income tax in certain jurisdictions. The tax years 2018 to 2022 remain open to examination by the major taxing jurisdictions to which the Company is subject. The following is a reconciliation of income tax expenses at the effective rate to income tax at the calculated statutory rates:

                
   Three Months Ended December 31,   Six Months Ended December 31, 
   2023   2022   2023   2022 
Statutory tax rate                    
Federal   21.00%    21.00%    21.00%    21.00% 
State   5.82%    5.85%    5.82%    5.85% 
Foreign tax rate difference   0.35%    (0.33%)   0.20%    1.86% 
Impairment loss on goodwill -permanent difference   –    –    –    (9.32%)
Net effect of state income tax deduction and other permanent differences   (0.74%)   (2.38%)   (3.89%)   (2.72%)
                     
Effective tax rate   26.43%    24.14%    23.13%    16.67% 

 

As of December 31, 2023, prepaid income taxes to US tax authorities and income tax payable to Chinese tax authorities was $41,987 and $283,519, respectively. As of June 30, 2023, prepaid income taxes to US tax authorities and income tax payable to Chinese tax authorities was $45,718 and $276,683, respectively.

 

The tax effects of temporary differences which give rise to significant portions of the deferred taxes are summarized as follows:

        
   December 31, 2023   June 30, 2023 
Deferred tax assets          
263A calculation  $183,268   $239,142 
Inventory reserve   209,655    149,907 
State taxes   2,619    2,435 
Accrued expenses   253,589    273,589 
ROU assets / liabilities   113,992    115,125 
Net Operation loss   3,002,627    2,173,221 
Disallowed interest expense   214,299    163,381 
Stock-based compensation   277,228    207,726 
Valuation allowance   (66,104)   – 
Others   85,596    85,596 
Total deferred tax assets   4,276,769    3,410,122 
           
Deferred tax liabilities          
Depreciation   (91,944)   (105,323)
Intangible assets acquired   (1,062,462)   (1,149,549)
Total deferred tax liabilities   (1,154,406)   (1,254,872)
           
Net deferred tax assets  $3,122,363   $2,155,250 

 

For the six months ended December 31, 2023, the Company recorded $66,104 of valuation allowance to reduce deferred tax assets for the losses incurred by DHS.