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INCOME TAXES
 12 Months Ended
Mar. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES NCOME TAXES
Income tax expense (benefit) attributable to (loss) income from continuing operations consists of (in thousands):
Year Ended March 31,
20232022
Current:
Federal$46 $1,358 
State150 44 
Foreign845 134 
Total current1,041 1,536 
Deferred:
Federal29 (507)
State(442)140 
Foreign(196)— 
Total deferred(609)(367)
Total$432 $1,169 


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 21.0% to pretax income (loss) from continuing operations as follows (in thousands):


Year Ended March 31,
20232022
Expected Federal income tax expense (benefit) U.S. statutory rate$(2,384)21.0 %$2,813 21.0 %
State income taxes, net of federal benefit(558)4.9 %177 1.3 %
Permanent Items28 -0.2 %(165)-1.2 %
Micro-captive insurance benefit(274)2.4 %(233)-1.8 %
Change in valuation allowance3,149 -27.7 %(2,251)-16.8 %
Income attributable to minority interest - Contrail190 -1.7 %(174)-1.3 %
Write-off Delphax Tech SAS— 0.0 %2,225 16.6 %
PPP Loan Forgiveness— 0.0 %(1,650)-12.3 %
Other differences, net281 -2.5 %427 3.2 %
Income tax expense (benefit)$432 -3.8 %$1,169 8.7 %


The Company did not record any liabilities for uncertain tax positions for the fiscal years ended March 31, 2023 and March 31, 2022.

The Company (exclusive of Delphax which has a full valuation allowance) has federal gross operating losses of $1.7 million and state gross operating losses of $9.4 million at March 31, 2023. These net operating losses will begin to expire in tax year 2031. The Company has foreign tax credits of $0.4 million that will begin to expire in tax year 2029.

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, 2023, DSI and Delphax accounted for $0.3 million and $0.0 million, respectively, of fiscal year 2023's valuation allowance effect. During the year ended March 31, 2022, each entity, respectively, accounted for $0.2 million and $(2.2) million of the fiscal year 2022's valuation allowance effect.

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

20232022
Net operating loss & attribute carryforwards$5,968 $3,794 
Unrealized losses on investments1,740 1,669 
Inventory reserve851 682 
Accrued vacation421 327 
Foreign tax credit391 263 
Accounts and notes receivable182 235 
Interest rate swaps77 138 
Investment in partnerships1,723 671 
Lease liabilities3,000 1,691 
Other deferred tax assets115 286 
Total deferred tax assets14,468 9,756 
Bargain purchase gain(191)(447)
Property and equipment(1,804)(1,532)
Right-of-use assets(2,815)(1,511)
Capital gain deferment(1,799)(1,696)
Foreign intangible assets(2,159)(2,572)
Other deferred tax liabilities(110)(36)
Total deferred tax liabilities(8,878)(7,794)
Net deferred tax assets$5,590 $1,962 
Less valuation allowance(8,007)(4,774)
Net deferred tax liabilities$(2,417)$(2,812)
Delphax entities

Effective on November 24, 2015, Air T, Inc. purchased interests in Delphax. 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, 2022 and March 31, 2023 have not yet been filed. The gross deferred tax balances related to the Delphax entities includes estimated foreign, U.S. federal and U.S. state loss carryforwards of $5.4 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 $3.4 million at March 31, 2023, and $3.1 million at March 31, 2022. 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.

Valuation Allowance

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended March 31, 2023. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.
On the basis of this evaluation, as of March 31, 2023, a valuation allowance of $8.0 million (inclusive of the Delphax entities’ valuation allowances that were discussed above) has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.