9. Income Tax

12 Months Ended

Mar. 31, 2014

Notes to Financial Statements

9. Income Tax

The provision for income tax for the years ending March 31, 2014 and 2013 is comprised of the following:

		Year Ended March 31,
		2014						2013
Current:
Federal		$		(387,000		)		$		40,000
State				(3,000		)				22,000
Total current income tax (benefit) expense				(390,000		)				62,000
Deferred:
Federal				1,439,000						226,000
State				76,000						14,000
Total deferred income tax expense				1,515,000						240,000
Income tax expense		$		1,125,000				$		302,000
A reconciliation between the income tax provision at the statutory rate on income tax and the income tax provision for the years ended March 31, 2014 and 2013 is as follows:
	Year Ended March 31,
	2014						2013
Federal tax at statutory rate	$		1,722,000				$		708,000
State taxes, net of federal benefit			55,000						18,000
Excess percentage depletion			(678,000		)				(415,000		)
Changes in state rates and other adjustments to deferred taxes			26,000						(9,000		)
Income tax expense	$		1,125,000				$		302,000
Effective rate expressed as a percentage of income before income tax			22.2		%				14.5		%

The overall effective tax rate expressed as a percentage of book income before income tax for the year ended March 31, 2014 was 22.2%, as compared to the year ended March 31, 2013 when it was 14.5%, was higher due to a decrease in the percentage of current year excess depletion deduction between the comparable periods.

Income tax payments, net, were $1,000 and $341,000 for the years ended March 31, 2014 and 2013, respectively.

Net deferred tax assets and liabilities were comprised of:	Year Ended March 31,
	2014			2013
Deferred tax assets:
Statutory depletion carry-forward	$	2,190,000		$	1,467,000
Other accruals		103,000			131,000
Allowance for doubtful accounts		5,000			14,000
Gross deferred tax assets		2,298,000			1,612,000
Deferred tax liabilities:
Depreciation, depletion and intangible drilling costs		(6,784,000	)		(4,583,000	)
Gross deferred tax liabilities		(6,784,000	)		(4,583,000	)
Net deferred tax liabilities	$	(4,486,000	)	$	(2,971,000	)

Projections of future income taxes and their timing require significant estimates with respect to future operating results.  Accordingly, deferred taxes may change significantly as more information and data is gathered with respect to such events as changes in commodity prices, their effect on the estimate of oil and gas reserves and the depletion of these long-lived reserves.

The Company is subject to U.S. federal income tax and income tax from multiple state jurisdictions.  The tax years remaining subject to examination by tax authorities are the years ended March 31, 2010 through 2014.

ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold before a benefit is recognized in the financial statements. As of March 31, 2014, the Company has not recorded a liability for uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax (benefit)/expense. No interest and penalties related to uncertain tax positions were incurred during the years ended March 31, 2014 and 2013.

As of March 31, 2014, the Company has approximately $270,000 of state net operating loss carryovers.  Under the various existing state laws, these net operating loss carryovers may be utilized to offset state taxable income through the year ended March 31, 2033.  A portion of the net operating loss carryover begins to expire in 2018.