INCOME TAXES

12 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

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

	Year Ended March 31,
	2022		2021
Current:
Federal	$	1,358	$	(3,330)
State	44		130
Foreign	134		39
Total current	1,536		(3,161)
Deferred:
Federal	(507)		91
State	140		(317)
Total deferred	(367)		(226)
Total	$	1,169	$	(3,387)

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

	Year Ended March 31,
	2022				2021
Expected Federal income tax expense (benefit) U.S. statutory rate	$	2,813	21.0	%	$	(2,472)	21.0	%
State income taxes, net of federal benefit	177		1.3	%	(271)		2.3	%
Permanent Items	(165)		-1.2	%	—
Micro-captive insurance benefit	(233)		-1.8	%	(217)		1.8	%
Change in valuation allowance	(2,251)		-16.8	%	621		-5.3	%
Income attributable to minority interest - Contrail	(174)		-1.3	%	247		-2.1	%
Write-off Delphax Tech SAS	2,225		16.6	%	—		0.0	%
PPP Loan Forgiveness	(1,650)		-12.3	%	—		0.0	%
NOL Carryback - Rate Differential	—		0.0	%	(1,468)		12.5	%
Other differences, net	427		3.2	%	173		-1.4	%
Income tax expense (benefit)	$	1,169	8.7	%	$	(3,387)	28.8	%

The Company did not record any liabilities for uncertain tax positions for the fiscal years ended March 31, 2022 and March 31, 2021.

The Company has state gross operating losses of $3.9 million at March 31, 2022. These net operating losses will begin to expire in tax year 2031. The Company has foreign tax credits of $0.3 million that will begin to expire in tax year 2027.

DSI and Delphax (collectively known as the “Delphax entities”) are not included in Air T’s consolidated tax return. During the year ended March 31, 2022, DSI and Delphax accounted for $0.2 million and $(2.2) million, respectively, of fiscal year 2022's valuation allowance effect. During the year ended March 31, 2021, each entity, respectively, accounted for $0.3 million and $(0.1) million of the fiscal year 2021's valuation allowance effect. Impairment on investments and changes in unrealized losses related to available-for-sale securities and foreign tax credits accounted for the valuation allowance effect for each year.

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

	2022		2021
Net operating loss & attribute carryforwards	$	3,794	$	4,094
Unrealized losses on investments	1,669		1,504
Investment in foreign subsidiaries	—		1,331
Inventory reserve	682		489
Accrued vacation	327		339
Foreign tax credit	263		535
Accounts and notes receivable	235		221
Interest rate swaps	138		149
Investment in partnerships	671		821
Lease liabilities	1,691		1,999
Other deferred tax assets	286		258
Total deferred tax assets	9,756		11,740
Bargain purchase gain	(447)		(470)
Property and equipment	(1,532)		(1,184)
Right-of-use assets	(1,511)		(1,838)
Capital gain deferment	(1,696)		(1,782)
GdW intangible assets	(2,572)		—
Other deferred tax liabilities	(36)		(35)
Total deferred tax liabilities	(7,794)		(5,309)
Net deferred tax asset	$	1,962	$	6,431
Less valuation allowance	(4,774)		(7,026)
Net deferred tax liability	$	(2,812)	$	(595)

Delphax entities

Effective on November 24, 2015, Air T, Inc. purchased interests in Dephax. With an equity investment level by the Company of approximately 67%, Delphax is required to continue filing a separate United States corporate tax return. Furthermore, Delphax historically had foreign subsidiaries located in France, 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 2016.

Delphax maintains a September 30 fiscal year end and DSI maintains a March 31 fiscal year end. The returns for the fiscal years ended September 30, 2021 and March 31, 2022 have not yet been filed. Included in the deferred tax balances above and related to the Delphax entities are estimated foreign, U.S. federal and U.S. state loss carryforwards of $4.3 million, $8.4 million and $2.2 million, respectively. The net operating losses expire in varying amounts beginning in the tax year 2027.

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 entities' tax attributes, the Company has established a full valuation allowance of $3.1 million at March 31, 2022, and $5.0 million at March 31, 2021. The cumulative tax losses incurred by the Delphax entities in recent years was the primary basis for the Company’s determination that a full valuation allowance should be established against the Delphax entities’ 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.