Note 9 - Income Taxes

12 Months Ended

Sep. 30, 2025

Notes to Financial Statements

Income Tax Disclosure [Text Block]

9. INCOME TAXES

Under the provisions of ASC 740, the deferred tax assets and liabilities of the Company were revalued in fiscal 2018 to reflect the reduction in the corporate federal income tax rate.  As a result of the revaluation, the excess deferred income taxes of the regulated operations of Roanoke Gas were reclassified to a regulatory liability.  The excess deferred taxes related to the depreciable property are being returned to customers over the remaining weighted average useful life of the property with a corresponding reduction in income tax expense.  The excess deferred taxes related to the other regulatory basis differences were being collected from customers over a five-year period, which concluded in  December 2023.

The details of income tax expense (benefit) are as follows: 

	Years Ended September 30
	2025			2024
Current income taxes:
Federal	$	3,167,466		$	3,128,721
State		733,266			689,671
Total current income taxes		3,900,732			3,818,392
Deferred income taxes:
Federal		(156,415	)		(398,588	)
State		347,218			276,807
Total deferred income taxes		190,803			(121,781	)
Total income tax expense	$	4,091,535		$	3,696,611

Income tax expense for the years ended September 30, 2025 and 2024 differed from amounts computed by applying the U.S. federal income tax rate to earnings before income taxes due to the following:

	Years Ended September 30
	2025			2024
Income before income taxes	$	17,371,505		$	15,457,507
Corporate federal income tax rate		21	%		21	%
Income tax expense computed at the federal statutory rate	$	3,648,016		$	3,246,076
State income taxes, net of federal income tax expense		853,582			763,518
Net amortization of excess deferred taxes on regulated operations		(366,844	)		(315,708	)
Net amortization of RNG tax credits		(100,649	)		(100,649	)
Reserve for unrecognized tax benefits		—			82,000
Other, net		57,430			21,374
Total income tax expense	$	4,091,535		$	3,696,611

During fiscal 2021, the Company engaged an outside firm to conduct a study of its activities that would qualify for the Research and Development ("R&D") credit under 26 U.S. Code § 41 - Credit for increasing research activities.  Upon completion of this study, the Company filed amended federal income tax returns for the 2017, 2018 and 2019 fiscal years to claim the R&D tax credit.  The Company also filed for the R&D tax credit on its fiscal 2020 federal income tax return.  A second study was performed during fiscal 2022, and the Company filed for the R&D tax credit on its fiscal 2021 federal income tax return.  During fiscal 2021 and 2022, the Company also applied for a Virginia State tax credit related to the R&D study. 

Amounts corresponding with the tax credits were deferred as a regulatory liability as such benefits will be returned to customers through future rate adjustments.  These credits were originally being amortized over the 20-year tax-life of the related utility plant.  In accordance with the SCC settlement agreement in relation to the Company’s non-gas rate application, the amortization of the R&D tax credit was halted effective August 1, 2023 as the IRS began an examination on the fiscal 2018 and 2019 federal tax returns.  As such, no amortization was recognized associated with the R&D tax credits in fiscal 2025 and 2024. 

During September 2025, the Company participated in the IRS Fast Track Settlement (FTS), which is a process that provides the IRS and taxpayers an opportunity to resolve disputes with an appeals official using mediation skills and settlement authority.  The IRS and Company agreed on a settlement equal to 40% of the R&D tax credits claimed for fiscal 2018 and 2019, the two years under examination.  Once the IRS finalizes the resolution and the refunds are received, the Company will proceed with refunding the R&D tax credits, net of related fees, to customers over a 12-month period through a mechanism to be approved by the SCC.  The net credit amount deferred as a regulatory liability as of September 30, 2025 was $2,568,143, which reflects adjustments to 40% of the fiscal 2018 and 2019 credits claimed and the remaining balance of the fiscal 2020 and 2021 credits claimed.  As part of the settlement, the Company grossed up the tax credit consistent with treatment of the excess deferred taxes. The deferred tax asset associated with the R&D tax credits was adjusted to $705,848 as of September 30, 2025 to reflect the adjustment for fiscal 2018 and 2019.  

During fiscal 2023, the Company engaged an outside firm to conduct a study of its RNG facility to determine eligibility for the Federal Energy Investment Tax Credit under 26 U.S. Code § 48 – Energy credit (“RNG tax credit”).  Upon completion of the study, the Company determined a credit in the amount of $1,892,164 to be claimed on the fiscal 2023 tax return.  Similar to the treatment of the R&D tax credits, the Company deferred the RNG tax credit as a regulatory liability, which is being amortized over the 20-year tax-life of the related asset.  Further, as part of the SCC order approving the RNG project and corresponding rates charged to customers, any tax credits attributable to the RNG project are to be used to reduce the cost to customers through the RNG Rider.  Accordingly, the Company grossed up the RNG tax credit consistent with treatment of the excess deferred taxes, thereby creating a deferred tax asset of $655,862, which is also being amortized over the 20-year tax-life of the related asset.  The Company recognized $127,404 of amortization as part of income tax expense on the consolidated statements of income in both fiscal 2025 and 2024 related to the federal RNG tax credit.

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows:

	September 30
	2025		2024
Deferred tax assets:
Accrued pension and postretirement medical benefits	$	556,316	$	512,778
Regulatory effect of change in federal income tax rate		2,433,559		2,553,086
Cost of gas held in storage		773,167		835,094
Deferred compensation		1,382,130		1,166,850
Impairment of unconsolidated affiliate		13,722,837		14,077,357
Regulatory effect on tax credits		1,277,006		1,437,670
Other		861,076		641,300
Total gross deferred tax assets		21,006,091		21,224,135
Deferred tax liabilities:
Utility property		20,367,400		19,879,747
MVP investment		2,054,156		1,586,837
Interest rate swaps		230,356		530,903
Accrued gas cost		14,339		345,464
Total gross deferred tax liabilities		22,666,251		22,342,951
Net deferred tax asset		617,390		771,746
Net deferred tax liability	$	2,277,550	$	1,890,562

Deferred tax assets and liabilities are recorded on the consolidated balance sheets on a net basis by taxing jurisdictions. As of September 30, 2025 and 2024, the Company's consolidated balance sheets included net deferred tax liabilities of $2,277,550 and $1,890,562, respectively, in deferred credits and other non-current liabilities and net deferred tax assets of $617,390 and $771,746, respectively, in other non-current assets.

ASC 740 provides for the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recognized in the financial statements. The Company evaluated its tax positions and recorded a reserve for unrecognized tax benefits of $273,936 as of September 30, 2024.  These unrecognized tax benefits relate to tax positions taken in the Company's prior tax returns. The reduction to $0 in the current year is due to the adjustments made to the Company's income tax assets and liabilities as a result of the FTS previously discussed. A reconciliation of the Company's unrecognized tax benefits is as follows:

	September 30
	2025			2024
Beginning balance	$	273,936		$	—
Increase (decrease) resulting from prior period tax positions		(273,936	)		273,936
Ending Balance	$	—		$	273,936

The Company’s policy is to classify interest associated with uncertain tax positions as interest expense in the financial statements. Tax penalties, if any, are netted against other income.

The Company files a consolidated federal income tax return and state income tax returns in Virginia and West Virginia, and thus subject to examinations by federal and state tax authorities.  The Company adjusted its income tax assets and liabilities to reflect the outcome of the FTS as of September 30, 2025.  Due to the federal government shutdown in October and November 2025, the Company has not received final notice from the IRS officially closing the Company's federal returns for fiscal 2018 and 2019.  Once final notice is received, the federal returns and the state returns for Virginia and West Virginia for the tax years ended through September 30, 2022 are closed to examination.