Income Taxes

12 Months Ended

Sep. 30, 2024

Income Taxes

Income Taxes

13.  Income Taxes

In August 2022, the U.S. government enacted the Inflation Reduction Act (the “IRA”). The IRA makes the following changes to the U.S tax code: imposes a corporate alternative minimum tax of 15% on corporations with an average annual Adjusted Financial Statement Income over a three year period in excess of $1 billion, increases the amount of R&D credit that qualified businesses can apply against payroll taxes to $500,000 and imposes an excise tax equal to one percent of the fair market value of stock of a publicly traded U.S. corporation that is repurchased by the company. These changes predominately apply to tax years beginning after December 31, 2022. This legislation will not have a material impact on the Company’s tax position.

The components of income taxes are as follows:

	For the Fiscal Year Ended September 30,
	2024		2023		2022
Current provision (benefit):
Federal	$	2,617,951	$	1,541,726	$	522,473
State		371,701		56,288		277,991
Total current provision (benefit)		2,989,652		1,598,014		800,464
Deferred provision (benefit)
Federal		(881,495)		28,994		998,585
State		(254,977)		(19,491)		18,782
Total deferred provision (benefit)		(1,136,472)		9,503		1,017,367
Total current and deferred provision (benefit)	$	1,853,180	$	1,607,517	$	1,817,831

Following is a reconciliation of the statutory federal rate to the Company’s effective income tax rate:

	For the Fiscal Year Ended September 30,
	2024		2023		2022
U.S. Federal statutory tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	1.1	%	0.4	%	11.8	%
Permanent items	0.1	%	—	%	0.1	%
Research and development tax credits	(1.6)	%	(0.8)	%	(0.1)	%
Valuation allowance	(0.1)	%	(0.1)	%	(6.4)	%
Change in unrecognized tax benefits	0.4	%	0.1	%	(1.5)	%
123R cancellations and forfeitures	0.0	%	0.4	%	0.3	%
Other	0.0	%	0.1	%	(0.5)	%
Effective income tax rate	20.9	%	21.1	%	24.7	%

The deferred tax effect of temporary differences giving rise to the Company’s deferred tax assets and liabilities consists of the components below:

	As of September 30,
	2024		2023
	Non Current		Non Current
Deferred tax assets:
Reserves and accruals	$	1,233,261	$	778,805
Research and development credit		—		—
NOL carryforwards -fed/state		971,825		980,755
Depreciation		—		—
Stock options		375,224		241,598
Amortization		1,302,165		520,445
		3,882,475		2,521,603
Less: Valuation allowance		(969,784)		(977,747)
Total deferred tax assets		2,912,691		1,543,856
Deferred tax liabilities:
Depreciation		(1,287,547)		(1,087,653)
Total deferred tax liabilities		(1,287,547)		(1,087,653)
Net deferred tax asset	$	1,625,144	$	456,203

At September 30, 2024 and 2023, the Company had state NOL carryforwards of approximately $19.2 million and $19.5 million, respectively, which begin to expire in varying amounts after the fiscal year ending September 30, 2026. The Company does not have federal R&D Tax Credit carryforwards in fiscal year 2024 and 2023.

Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be verified objectively, and significant management judgment is required in determining any valuation allowance recorded against net deferred tax assets. The Company evaluates deferred income taxes on a quarterly basis to determine if valuation allowances are required by considering available evidence, including historical and projected taxable income and tax planning strategies which are both prudent and feasible. ASC Topic 740 requires the consideration of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Significant management judgment is required in determining any valuation allowance recorded against net deferred tax assets. As a result of  positive evidence that the Company’s deferred tax assets are more likely than not to be realized in future years, the Company reduced its valuation allowance of deferred tax assets by $7,963, $4,069 and $467,388 for fiscal years ended September 30, 2024, 2023 and 2022, respectively reducing the Company’s provision for income taxes in each fiscal year. The Company will continue to assess all available evidence during future periods to evaluate any changes to the realization of its deferred tax assets. If the Company were to determine that it would be able to realize additional state deferred tax assets in the future, it would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

Following is a reconciliation of beginning and ending balances of total amounts of gross unrecognized tax benefits:

	For the Fiscal Year Ended September 30,
	2024		2023
Balance at beginning of year	$	460,000	$	452,000
Unrecognized tax benefits related to prior years		8,000		—
Unrecognized tax benefits related to current year		28,000		8,000
Decrease in unrecognized tax benefits due to the lapse of applicable statute of limitations		(12,000)		—
Balance at end of year	$	484,000	$	460,000

It is anticipated that the balance of unrecognized tax benefits at September 30, 2024 will change significantly over the next twelve months as the majority of the positions will have statue lapses in September 30, 2025 and 2026. The balance of unrecognized tax benefits are recorded within the valuation allowance in the table above at fiscal years ended September 30, 2024 and 2023.

The Company’s policy is to recognize interest accrued and, if applicable, penalties related to unrecognized tax benefits in income tax expense for all periods presented. At September 30, 2024, the Company currently has no unrecognized tax benefits against which interest has been accrued, and there is no accrual recorded for penalties.

For the fiscal years ended September 30, 2024, 2023 and 2022, the Company did not recognize any expense for interest (net of federal impact) within income tax expense.

The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of related tax laws and regulations and require significant judgment to apply. The Company’s federal income tax returns for the fiscal years ended September 30, 2021 and thereafter are open years subject to examination by the Internal Revenue Service.The Company files income tax returns in various state jurisdictions, as appropriate, with varying statutes of limitation. There are no state income tax examinations in process at this time.