Income Taxes

12 Months Ended

Aug. 31, 2022

Income Taxes

Income Taxes

Note 7. Income Taxes

The following summarizes the Company’s provision for income taxes on income from operations:

	Years Ended August 31,
	2022		2021
Current:
Federal	$	5,547,000	$	2,489,000
State		1,608,000		868,000
Foreign		322,000		(62,000)
		7,477,000		3,295,000
Deferred:
Federal		63,000		(2,000)
State		270,000		—
Foreign		—		—
		333,000		(2,000)
Total	$	7,810,000	$	3,293,000

Income taxes for the years ended August 31, 2022 and 2021 differ from the amounts computed by applying the federal blended and statutory corporate rates of 21% for both 2022 and 2021 to the pre-tax income. The differences are reconciled as follows:

	Years Ended August 31,
	2022			2021
Current:
Expected income tax provision at statutory rate		21.0	%		21.0	%
Increase (decrease) in taxes due to:
State tax, net of federal benefit		4.4	%		4.6	%
Permanent differences		0.1	%		(0.3)	%
Other, net		1.3	%		2.9	%
Income tax expense		26.8	%		28.2	%

The components of deferred taxes at August 31, 2022 and 2021 are summarized below:

	August 31,
Deferred tax assets (liabilities):	2022		2021
Net operating loss	$	174,000	$	357,000
Accruals and reserves		1,148,000		1,401,000
Income tax credits		1,000		1,000
Capital loss		40,000		49,000
Lease liability		2,789,000		2,968,000
Property and equipment, net		(958,000)		(957,000)
Operating lease, right-of-use assets		(2,742,000)		(2,941,000)
Unrealized gains/losses		85,000		(7,000)
		537,000		871,000
Valuation allowance		––		—
Total deferred tax assets, net	$	537,000		871,000

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing DTA. On the basis of this evaluation, as of August 31, 2022, no valuation allowance has been recorded.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provides tax relief and tax incentives to business, including provisions relating to net operating loss carryback, refundable payroll tax credits, OASDI payroll tax deferral, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. The Company did not apply for SBA Paycheck Protection Program loan based on the advice of its legal counsel due to stable cash flow and available cash from the Company’s line of credits. The Company has taken advantage of the Employee Retention Credit (ERC), which is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2022. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. The amount of the refundable tax credit for fiscal year 2022 and 2021 is $5.3 million and $5.4 million, respectively, and the ERC was applied against and reduced the payroll tax expense included in SG&A.

We are subject to taxation in the United States and various states and foreign jurisdictions. With few exceptions, as of August 31, 2022, we are no longer subject to U.S. federal, state, local, Canadian examinations by tax authorities for years before 2018.