INCOME TAXES

12 Months Ended

Mar. 31, 2020

Income tax expense (benefit) attributable to (loss) income from continuing operations consists of (in thousands):


	Year Ended March 31,
	2020		2019
Current:
Federal	$	43	$	2,484
State	(8)		418
Foreign	—		23
Total current	35		2,925
Deferred:
Federal	(481)		(1,101)
State	(98)		(63)
Total deferred	(579)		(1,164)

Total	$	(544)	$	1,761

Income tax expense attributable to (loss) income from continuing operations differed from the amounts computed by applying the U.S. Federal income tax rate of 21% to pretax (loss) income from continuing operations as follows (in thousands):


	Year Ended March 31,
	2020						2019
Expected Federal income tax expense U.S. statutory rate	$	551	21.0	%	$	1,253	21.0	%
State income taxes, net of federal benefit	(519)		-19.8	%	201		3.4	%
Nontaxable cancellation of debt income	(1,331)		-50.7	%	—		0.0	%
Micro-captive insurance benefit	(172)		-6.6	%	(197)		-3.3	%
Change in valuation allowance	(7,789)		-296.8	%	1,405		23.5	%
Income attributable to minority interest - Contrail	(325)		-12.4	%	(434)		-7.3	%
Write-off Delphax tax attributes	9,353		356.4	%	—		0.0	%
Acquired NOL carrybacks; CARES Act	(363)		-13.8	%	—		0.0	%
Other differences, net	51		1.9	%	(467)		-7.8	%
Income tax (benefit) expense	$	(544)	-20.7	%	$	1,761	29.5	%

During the fiscal period ended March 31, 2020, the Company sold GAS. See Note 2. The tax benefit related to this entity that have been allocated to discontinued operations for the March 31, 2020 and March 31, 2019 fiscal years were $0.6 million and $0.3 million, respectively. In addition, a gain on the sale of discontinued operations was recognized, resulting in a net of tax gain of $8.2 million.

Delphax Solutions and Delphax Technologies are not included in Air T, Inc.’s consolidated tax return and account for $0.2 million and $(8.9) million of the above valuation allowance effect for each year, respectively. The valuation allowance release in March 31, 2020 relates to attribute reduction for cancellation of debt income and dissolution of the Canadian and UK subsidiaries (See Note 5). There is a separate return filed for Delphax Solutions and Delphax Technologies for the fiscal years ending March 31, 2020 and March 31, 2019. Impairment on investments and changes in unrealized losses related to available-for-sale securities accounted for the remaining valuation allowance effect for each year.

Deferred tax assets and liabilities were comprised of the following (in thousands):


	2020		2019
Net operating loss & attribute carryforwards	$	3,524	$	7,516
Federal/Canadian tax credits	—		4,486
Unrealized losses on investments	1,693		833
Investment in foreign subsidiaries	1,369		1,431
Investment in partnerships	840		534
Disallowed capital loss	—		463
Lease liabilities	1,909		—
Other deferred tax assets	1,019		738
Total deferred tax assets	10,354		16,001

Bargain purchase gain	(385)		(434)
Property and equipment	(485)		(233)
Right-of-use assets	(1,791)		—
Capital gain deferment	(1,700)		—
Other deferred tax liabilities	(167)		(198)
Total deferred tax liabilities	(4,528)		(865)

Net deferred tax asset	$	5,826	$	15,136

Less valuation allowance	(6,405)		(14,658)

Net deferred tax (liability) asset	$	(579)	$	478

Delphax

As described in Note 5, effective on November 24, 2015, Air T, Inc. purchased interests in Dephax. With an equity investment level by the Company of approximately 38%, Delphax is required to continue filing a separate United States corporate tax return. Furthermore, Delphax has foreign subsidiaries located in France, and historically had foreign subsidiaries located in Canada and the United Kingdom; all of which file(d) tax returns in those jurisdictions. With few exceptions, Delphax, is no longer subject to examinations by income tax authorities for tax years before 2015.

Delphax maintains a September 30 fiscal year end. The returns for the fiscal year ended September 30, 2019 have not yet been filed. Included in the deferred tax balances above and related to Delphax and its subsidiaries are estimated foreign and U.S. federal loss carryforwards of $2.3 million and $9.1 million, respectively. The net operating losses expire in varying amounts beginning in the year 2023.

The provisions of ASC 740 require an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets will be recovered. In accounting for the Delphax tax attributes, the Company has established a full valuation allowance of $4.8 million at March 31, 2020, and $13.0 million at March 31, 2019. The cumulative tax losses incurred by Delphax in recent years was the primary basis for the Company’s determination that a full valuation allowance should be established against Delphax’s net deferred tax assets.

The Company continues to assert that it will permanently reinvest any foreign earnings of DSI in a foreign country and will not repatriate those earnings back to the U.S. As a result of its permanent reinvestment assertion, the Company has not recorded deferred taxes related to DSI under the indefinite exception.

In March of 2020, the CARES Act was enacted and made significant changes to federal tax laws, including certain changes that were retroactive to the March 31, 2020 tax year. Changes in tax laws are accounted for in the period of enactment and the retroactive effects are recognized in these financial statements. There were no material income tax consequences of this enacted legislation on the reporting period of these financial statements.