INCOME TAXES

12 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 13 — INCOME TAXES

The total provision (benefit) for income taxes consists of the following for the fiscal years ended (dollars in thousands):

	Fiscal Year Ended March 31,
	2023		2022		2021
Current	$	97	$	179	$	244
Deferred		17,881		1,980		(19,860	)
Total	$	17,978	$	2,159	$	(19,616	)
	2023		2022		2021
Federal, Current	$	—	$	—	$	—
Federal, Deferred		14,557		1,658		(16,217	)
Total Federal		14,557		1,658		(16,217	)
State, Current		97		179		244
State, Deferred		3,324		322		(3,643	)
Total State		3,421		501		(3,399	)
Total	$	17,978	$	2,159	$	(19,616	)

A reconciliation of the statutory federal income tax rate and effective income tax rate is as follows:

	Fiscal Year Ended March 31,
	2023			2022			2021
Statutory federal tax rate		21.0	%		21.0	%		21.0	%
State taxes, net		4.0	%		5.2	%		5.3	%
State tax credits, net		(1.9	)%		—	%		—	%
Change in valuation reserve		(131.3	)%		(0.4	)%		(321.4	)%
Permanent items		(1.0	)%		(1.9	)%		(3.4	)%
Change in tax contingency reserve		(0.1	)%		0.1	%		(0.5	)%
Equity compensation cancellations		(0.1	)%		0.1	%		0.6	%
State return to provision		(0.9	)%		2.3	%		(1.7	)%
Other, net		0.4	%		(0.2	)%		(0.9	)%
Effective income tax rate		(109.9	)%		26.2	%		(301.0	)%

The net deferred tax assets reported in the accompanying consolidated financial statements include the following components (dollars in thousands):

	March 31,
	2023			2022
Deferred tax assets:
Inventory, accruals and reserves		680			809
Interest deduction carry-forward		71			—
Federal and state operating loss carry-forwards		18,849			16,485
Tax credit carry-forwards		1,537			1,847
Equity compensation		188			231
Deferred revenue		25			29
Lease liability		669			670
Intangible assets		984			—
Other		798			247
Total deferred tax assets		23,801			20,318
Valuation allowance		(22,731	)		(1,249	)
Deferred tax assets, net of valuation allowance		1,070			19,069
Deferred tax liabilities:
Lease ROU asset		(549	)		(518	)
Fixed assets		(598	)		(529	)
Intangible assets		—			(217	)
Total deferred tax liabilities		(1,147	)		(1,264	)
Total net deferred tax (liabilities) assets	$	(77	)	$	17,805

For fiscal year ended March 31, 2023, Orion’s deferred tax assets were primarily the result of U.S. NOL and tax credit carryforwards. Orion recorded a valuation allowance of $22.7 million and $1.2 million against its net deferred tax asset balance as of March 31, 2023 and March 31, 2022, respectively, due to the uncertainty of its realization value in the future. Orion realized a 36-month cumulative loss as of March 31, 2023 and the accounting forecast, as revised in the previous quarter, projects losses in the near term. As such, Orion management has concluded that it is more likely than not that the domestic deferred tax assets will not be realized and an increase to the valuation allowance has been recorded in the third quarter, which increased tax expense by $17.8 million.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. Orion considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event that Orion determines that the more or less of its deferred tax assets are able to be realized, an adjustment to the valuation allowance would be reflected in the company’s provision for income taxes.

As of March 31, 2023, Orion has federal NOL carryforwards of approximately $71.4 million, state NOL carryforwards of approximately $66.1 million, and foreign NOL carryforwards of approximately $0.8 million. Orion also had federal tax credit carryforwards of approximately $1.3 million and state tax credits of $0.3 million. All of Orion's tax credit carryforwards and $118.6 million of its NOL carryforwards will begin to expire in varying amounts between 2023 and 2033. The remaining $19.7 million of its federal and state NOL carryforwards are not subject to time restrictions but may only be used to offset 80% of adjusted taxable income. Orion believes it is more likely than not that the benefit from its state credit carryforwards, foreign NOL carryforwards, federal credit carryforwards, and state loss carryforwards will not be realized. In recognition of this risk, Orion has provided a net valuation allowance of $22.7 million on the deferred tax assets related to these carryforwards.

Generally, a change of more than 50% in the ownership of Orion's stock, by value, over a three-year period constitutes an ownership change for federal income tax purposes as defined under Section 382 of the Internal Revenue Code. As a result, Orion's ability to use its net operating loss carryforwards, attributable to the period prior to such ownership change, to offset taxable income can be subject to limitations in a particular year, which could potentially result in increased future tax liability for Orion. There was no limitation of NOL carryforwards that occurred for fiscal 2023, fiscal 2022, or fiscal 2021.

Orion records its tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where Orion believes that a tax position is supportable for income tax purposes, the item is included in their income tax returns. Where treatment of a position is uncertain, a liability is recorded based upon the expected most likely outcome taking into consideration the technical merits of the position based on specific tax regulations and facts of each matter. These liabilities may be affected by changing interpretations of laws, rulings by tax authorities, or the expiration of the statute of limitations.

Orion files income tax returns in the United States federal jurisdiction and in several state jurisdictions. The Company's federal tax returns for tax years beginning April 1, 2019 or later are open. For states in which Orion files state income tax returns, the statute of limitations is generally open for tax years beginning April 1, 2019 or later.

State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective return. The state effect of any federal changes remains subject to examination by various states for a period of up to two years after formal notification to the states. Orion currently has no state income tax return positions in the process of examination, administrative appeals or litigation.

Uncertain tax positions

As of March 31, 2023, the balance of gross unrecognized tax benefits was approximately $0.2 million, all of which would affect Orion’s effective tax rate if recognized.

Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) to the extent that payment is not anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest are included in the unrecognized tax benefits. Accrued interest and penalties for such unrecognized tax benefits as of March 31, 2023 and 2022 were $0.1 million. Orion had the following unrecognized tax benefit activity (dollars in thousands):

	Fiscal Year Ended March 31,
	2023		2022			2021
Unrecognized tax benefits as of beginning of fiscal year	$	215	$	285		$	259
Additions based on tax positions related to the current period positions		1		39			123
Additions/(reductions) for tax positions of prior years		9		(109	)		(97	)
Unrecognized tax benefits as of end of fiscal year	$	225	$	215		$	285