XML 28 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Income Taxes
 12 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES
8. INCOME TAXES
Provision for Income Taxes
Income (loss) before income taxes for the years ended September 30, 2020, 2019, and 2018 is comprised of the following (amounts shown in thousands):
202020192018
Domestic$11,071 $8,992 $(1,584)
Foreign(1,662)(12,980)(7,157)
Total$9,409 $(3,988)$(8,741)
For the years ended September 30, 2020, 2019, and 2018 the income tax benefit (provision) was as follows (amounts shown in thousands):
202020192018
Federal—current$— $(117)$(87)
Federal—deferred(2,182)639 (4,537)
State—current(46)(438)(26)
State—deferred67 515 773 
Foreign—current(436)594 (270)
Foreign—deferred1,002 2,071 1,081 
Total$(1,595)$3,264 $(3,066)
Deferred Income Tax Assets and Liabilities
Significant components of the Company’s net deferred tax assets and liabilities as of September 30, 2020 and 2019 are as follows (amounts shown in thousands):
20202019
Deferred tax assets:
Stock-based compensation$2,503 $2,646 
Net operating loss carryforwards5,931 9,419 
Research credit carryforwards6,264 5,570 
Lease liability1,091 — 
Intangibles300 58 
Other, net— 90 
Total deferred assets16,089 17,783 
Deferred tax liabilities:
Right of use asset(726)— 
Foreign deferred liabilities(5,756)(5,811)
Other, net(62)— 
Net deferred tax asset9,545 11,972 
Valuation allowance for net deferred tax assets(710)(931)
Net deferred tax asset$8,835 $11,041 
The net change in the total valuation allowance for the fiscal years ended September 30, 2020 and 2019 was a decrease of $0.2 million and an increase of $0.5 million, respectively. In assessing the realizability of deferred tax assets, the Company 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 periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. Based on the level of historical operating results and the projections for future taxable income, the Company has determined that it is more likely than not that the deferred tax assets may be realized for all deferred tax assets with the exception of the net foreign deferred tax assets at Mitek Systems B.V, which the Company has recorded a full valuation allowance.
As of September 30, 2020, the Company has available net operating loss carryforwards of $16.0 million for federal income tax purposes. The Company did not generate any net operating losses in the fiscal year ended September 30, 2020. Of the remaining net operating losses, $2.2 million can be carried forward indefinitely, and $13.8 million, which were generated prior to the fiscal year 2020, will start to expire in 2032 unless previously utilized. The net operating losses for state purposes are $28.1 million, which will begin to expire in 2028. As of September 30, 2020, the Company has available federal research and development credit carryforwards, net of reserves, of $3.2 million. The federal research and development credits will start to expire in 2022. As of September 30, 2020, the Company has available California research and development credit carryforwards, net of reserves, of $2.8 million, which do not expire.
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “IRC”) limit the utilization of tax attribute carryforwards that arise prior to certain cumulative changes in a corporation’s ownership. The Company has completed an IRC Section 382/383 analysis through March 31, 2017 and any identified ownership changes had no impact to the utilization of tax attribute carryforwards. Any future ownership changes may have an impact on the utilization of the tax attribute carryforwards.
Income Tax Provision Reconciliation
The difference between the income tax benefit (provision) and income taxes computed using the U.S. federal income tax rate was as follows for the years ended September 30, 2020, 2019, and 2018 (amounts shown in thousands):
202020192018
Amount computed using statutory rate$(1,977)$841 $2,122 
Net change in valuation allowance for net deferred tax assets221 (459)(367)
Other— — (191)
Foreign rate differential86 664 22 
Non-deductible items(178)(151)(276)
State income tax(205)(370)50 
Impact of tax reform on deferred taxes— — (4,901)
Research and development credits897 1,694 475 
Foreign income tax10 (494)— 
Stock compensation, net(449)1,539 — 
Income tax benefit (provision)$(1,595)$3,264 $(3,066)
Uncertain Tax Positions
In accordance with authoritative guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
The following table reconciles the beginning and ending amount of unrecognized tax benefits for the fiscal years ended September 30, 2020, 2019, and 2018 (amounts shown in thousands):
202020192018
Gross unrecognized tax benefits at the beginning of the year
$1,607 $1,321 $1,181 
Additions from tax positions taken in the current year203 213 140 
Additions from tax positions taken in prior years— 73 — 
Reductions from tax positions taken in prior years— — — 
Tax settlements— — — 
Gross unrecognized tax benefits at end of the year$1,810 $1,607 $1,321 
Of the total unrecognized tax benefits at September 30, 2020, $1.8 million will impact the Company’s effective tax rate. The Company does not anticipate that there will be a substantial change in unrecognized tax benefits within the next twelve months.
The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of September 30, 2020, no accrued interest or penalties related to uncertain tax positions are recorded in the consolidated financial statements.
The Company is subject to income taxation in the U.S. at the federal and state levels. All tax years are subject to examination by U.S., California, and other state tax authorities due to the carryforward of unutilized net operating losses and tax credits. The Company is also subject to foreign income taxes in the countries in which it operates. The examination of the Company’s U.S. federal tax return for the year ended September 30, 2017 was completed during the fourth quarter of fiscal 2020. To our knowledge, the Company is not currently under examination by any other taxing authorities.
Tax Cuts and Jobs Act
On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Tax Cuts and Jobs Act"). The Tax Cuts and Jobs Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. federal corporate tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018.
In conjunction with the tax law changes, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. In accordance with SAB 118, the Company completed the accounting for the remeasurement of
deferred tax assets and liabilities in the year ended September 30, 2020, which included the period of enactment. Additionally, for the fiscal year ended September 30, 2020, the entire fiscal year’s activity was under the 21% tax rate.
CARES Act
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, 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 continues to examine the impacts the CARES Act may have on our business. For the year ended September 30, 2020, the CARES Act has been considered for the income tax provision.