Income Taxes

Income tax expense (benefit) consisted of the following:



	Years ended April 30,
	2020			2019		2018
	(in thousands)
Current:
Federal	$	295		$	184	$	2,298
State	370			334		743
	665			518		3,041
Deferred:
Federal	(513		)	256		321
State	(96		)	64		300
	(609		)	320		621
	$	56		$	838	$	3,662

The Company’s actual income tax expense differs from the “expected” income tax expense calculated by applying the Federal statutory rate of 21.0% for fiscal 2020 and 2019 and our blended U.S. Federal statutory rate of 30.3% for fiscal 2018, to earnings before income taxes as follows:



	Years ended April 30,
	2020			2019			2018
	(in thousands)
Computed “expected” income tax expense	$	1,428		$	1,605		$	4,763
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax effect	214			339			891
Research and development credits	(703		)	(678		)	(493		)
Excess tax benefits from stock option deductions	(737		)	(251		)	(165		)
Foreign tax credits	(164		)	(112		)	(211		)
Rate change – tax reform	—			—			(1,206		)
Other, net, including permanent items	18			(65		)	83
	$	56		$	838		$	3,662

Our effective income tax rates were 1%, 11% and 23% in 2020, 2019 and 2018, respectively. Our effective income tax rate takes into account the source of taxable income, by state, and available income tax credits. The provision for income taxes in fiscal 2020, 2019 and 2018 includes approximately $878,000, $298,000 and $186,000, respectively, in income tax benefits related to the tax benefits realized from stock option deductions.

The significant components of deferred income tax expense attributable to income from continuing operations before income taxes for the years ended April 30, 2020, 2019, and 2018 are as follows:



	Years ended April 30,
	2020			2019			2018
	(in thousands)
Deferred tax (benefit) expense	$	(639	)	$	330		$	1,823
Deferred tax benefit related to tax reform	—			—			(1,206		)
Increase (decrease) in the valuation allowance for deferred tax assets	30			(10		)	4
	$	(609	)	$	320		$	621

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at April 30, 2020 and 2019 are presented as follows:



	2020			2019
	(in thousands)
Deferred tax assets:
Accruals and expenses not deducted for tax purposes	$	363		$	328
State net operating loss carryforwards	226			217
Fixed asset basis differences	822			831
Nonqualified stock options	848			858
Right of use liability	547			—
Tax credit carryforwards	83			—
Total gross deferred tax assets	2,889			2,234
Less valuation allowance	(190		)	(160		)
Net deferred tax	2,699			2,074
Deferred tax liabilities:
Capitalized computer software development costs	(2,090		)	(2,766		)
Net gains/losses on trading securities	(1,005		)	(1,183		)
Goodwill and intangible assets basis differences	(746		)	(639		)
Right of use asset	(513		)	—
Deferred agent commissions	(1,242		)	(1,000		)
Total gross deferred tax liabilities	(5,596		)	(5,588		)
Net deferred tax liabilities	$	(2,897	)	$	(3,514	)

At April 30, 2020, the Company had approximately $5.7 million of various state net operating loss carryforwards which are available to offset future state taxable income, if any, through 2035.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon reversal of deferred tax liabilities and expected future profitability, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances, at April 30, 2020.

The Company applies the accounting provisions which require us to prescribe a recognition threshold and measurement attribution for the financial statement recognition and measurement of a tax position taken or expected to be taken within an income tax return.

As of April 30, 2020, 2019 and 2018, we recorded approximately $34,000, $43,000, and $56,000, respectively, of unrecognized tax benefits, inclusive of interest and penalties, all of which would impact our effective tax rate if recognized. The liability for unrecognized tax benefits is recorded net of any federal tax benefit that would result from payment.

We recognize potential accrued interest and penalties related to unrecognized tax benefits within income tax expense. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. As of April 30, 2020 and 2019, we recorded a liability for potential penalties and interest of approximately $19,000 and $22,000, respectively, related to uncertain tax positions.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows, excluding interest and penalties (in thousands):



	2020			2019
Balance at beginning of the period	$	21		$	32
Decreases as a result of positions taken during prior periods	(6		)	(11		)
Increases as a result of positions taken during the current period	—			—
Balance at April 30,	$	15		$	21

We conduct business globally and, as a result, file consolidated income tax returns in the United States federal jurisdiction and in many state and foreign jurisdictions. We are no longer subject to state and local, or non–U.S. income tax examinations for years prior to 2002. We are no longer subject to U.S. federal income tax examination for years prior to 2016.

During the years ended April 30, 2020, 2019 and 2018, we recorded research and development state tax credits against payroll taxes of approximately $427,000, $488,000, and $290,000 respectively, which reduced general and administrative expenses by the same amounts.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered our U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018. For fiscal 2018, our blended U.S. federal statutory tax rate was 30.3%. This is the result of using the tax rate of 35% for the first eight months of fiscal year 2018 and the reduced tax rate of 21% for the final four months of fiscal 2018. During the fiscal year ended April 30, 2018, we recorded a $1.2 million benefit from the impact of changes in the tax rate, primarily on deferred tax assets and liabilities, which was included in income tax expense on our consolidated statement of operations and deferred income taxes on our consolidated balance sheet. We remeasured our deferred taxes to reflect the reduced rate that will apply when these deferred taxes are settled or realized in future periods. To calculate the remeasurement of deferred taxes, we estimated when the existing deferred taxes will be settled or realized.