Income Taxes

9 Months Ended

Mar. 31, 2012

Income Taxes

Income Taxes

Note 14.  Income Taxes

The Company uses the liability method to account for income taxes.  Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse.  Deferred tax expense/(benefit) is the result of changes in deferred tax assets and liabilities.

The provision for federal, state and local income taxes for the three months ended March 31, 2012 and 2011 was tax expense (benefit) of $1,056,684 and $(449,797), respectively, with effective tax rates of 38% and 56%, respectively. The provision for federal, state and local income taxes for the nine months ended March 31, 2012 and 2011 was tax expense of $1,787,999 and $554,568, respectively, with effective tax rates of 41% and 26%, respectively. The effective tax rate for the three and nine months ended March 31, 2012 includes the impact of nondeductible incentive stock option compensation expenses relative to the expected pretax income for Fiscal 2012 partially offset by the impact of income tax credits.  The effective tax rate for the three and nine months ended March 31, 2011 includes the impact of income tax credits and the reversal of a portion of our liability for unrecognized tax benefits totaling $263,793 related to a settlement with the IRS recorded in the prior year period ended December 31, 2010, partially offset by the impact of nondeductible incentive stock option compensation expenses relative to the expected pretax income for Fiscal 2011. The Company expects its overall effective tax rate will be approximately 40% to 42% for the full year ended June 30, 2012.

The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

As of March 31, 2012 and June 30, 2011, the Company reported total unrecognized tax benefits of $298,666 and $208,792, respectively.  As a result of the positions taken during the period, the Company has not recorded any interest and penalties for the period ended March 31, 2012 in the statement of operations and no cumulative interest and penalties have been recorded either in the Company’s statement of financial position as of March 31, 2012 and June 30, 2011. The Company will recognize interest accrued on unrecognized tax benefits in interest expense and any related penalties in operating expenses.  The Company does not believe that the total unrecognized tax benefits will significantly increase or decrease in the next twelve months.

The Company files income tax returns in the United States federal jurisdiction, Pennsylvania, New Jersey and California.  The Company’s tax returns for Fiscal 2008 and prior generally are no longer subject to review as such years generally are closed. The Company believes that an unfavorable resolution for open tax years would not be material to the financial position of the Company.