Income Taxes

12 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 11: INCOME TAXES

The following table presents the components of our income from continuing operations before income taxes, including inter-segment amounts:

	Fiscal Year Ended September 30,
	2020		2019		2018
	(in thousands)
Domestic*	$	(31,989)	$	(9,609)	$	28,645
Foreign	(38,106)		13,783		26,894
	$	(70,095)	$	4,174	$	55,539

*    Includes the majority of our corporate administrative costs. See Note 14 for information pertaining to segment contribution.

The following table presents the significant components of the income tax provision:

	Fiscal Year Ended September 30,
	2020		2019		2018
	(in thousands)
Current:
Federal	$	(6,631)	$	431	$	(26)
State and foreign	10,544		704		9,288
	3,913		1,135		9,262
Deferred:
Federal*	(1,561)		(4,264)		9,498
State and foreign	(3,984)		5,535		(371)
	(5,545)		1,271		9,127
Total income tax (benefit) expense	$	(1,632)	$	2,406	$	18,389

*    The year ended September 30, 2018 includes a $2.1 million charge resulting from the remeasurement of our domestic net deferred tax assets based on the new corporate income tax rate as a result of the Tax Cuts and Jobs Act(“the Act”), as well as $2.6 million charge resulting from recording a valuation allowance against foreign tax credit carryforwards that do not meet the “more likely than not” threshold to be utilized as a result of tax law changes included in the Act.

The following table presents a reconciliation of income taxes calculated at the statutory rate and the provision for income taxes:

	Fiscal Year Ended September 30,
	2020			2019			2018
	(in thousands)
Income tax (benefit) expense at the federal statutory rate	$	(14,720)		$	878		$	13,623
State taxes, net of federal benefit	951			184			1,265
Mexico inflation adjustment	(1,120)			(801)			(936)
Non-deductible items	772			2,088			2,214
Tax credits	—			(551)			(615)
Foreign rate differential	(1,671)			1,080			1,405
Change in valuation allowance	962			1,601			3,986
Stock compensation	598			(711)			—
Uncertain tax positions	2,849			(1,596)			(4,808)
Change in tax rate resulting from enactment of the Act	—			—			2,558
Non-deductible impairment	9,093			—			—
Other	654			234			(303)
Total income tax (benefit) expense	$	(1,632)		$	2,406		$	18,389
Effective tax rate	2		%	58		%	33		%

The following table shows significant components of our deferred tax assets and liabilities:

	September 30,
	2020		2019
	(in thousands)
Deferred tax assets:
Cash Converters International	$	15,049	$	14,616
Tax over book inventory	9,737		6,858
Accrued liabilities	8,924		4,518
Pawn service charges receivable	1,019		1,699
Stock compensation	1,565		2,758
Foreign tax credit	1,696		2,638
State and foreign net operating loss carryforwards	15,990		15,806
Book over tax depreciation	4,651		2,659
Other	4,350		2,159
Total deferred tax assets before valuation allowance	62,981		53,711
Valuation allowance	(18,524)		(18,094)
Net deferred tax assets	44,457		35,617
Deferred tax liabilities:
Tax over book amortization	22,444		19,042
Note receivable discount	12,257		15,416
Prepaid expenses	1,349		1,146
Total deferred tax liabilities	36,050		35,604
Net deferred tax asset	$	8,407	$	13

As of September 30, 2020, we had state net operating loss carryforwards of approximately $123.0 million, which begin to expire in 2021 if not utilized. We also had foreign net operating loss carryforwards of $42.0 million, which will expire between 2030 and 2038 if not utilized. Additionally, we have a $1.7 million foreign tax credit that will expire between 2024 to 2027 if not utilized.

Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary differences between the tax basis and book basis of assets and liabilities. The Company has elected to account for the tax on Global Intangible Low-Taxed Income (“GILTI”) as a period cost and therefore has not recorded deferred taxes related to GILTI on its foreign subsidiaries. A valuation allowance is established against a deferred tax asset when it is more likely than not that the deferred tax asset will not be realized. Our valuation allowance has been established to offset certain state and foreign net operating loss carryforwards, capital loss carryforwards and foreign tax credit carryforwards that are not more likely than not to be utilized prior to expiration. The valuation allowance increased by $0.4 million in fiscal 2020, primarily due to the recording of a valuation allowance for losses generated during the year in certain foreign jurisdictions which we believe are not more likely than not to be utilized partially offset by a decrease for certain foreign tax credits for which we amended a tax return to take a deduction instead of a foreign tax credit thereby reversing the deferred tax asset and corresponding valuation allowance. We believe our results from future operations will generate sufficient taxable income in the appropriate jurisdictions such that it is more likely than not that the remaining deferred tax assets will be realized.

Deferred taxes are not provided for undistributed earnings of foreign subsidiaries of approximately $63.0 million which are intended to be reinvested outside of the U.S. Accordingly, no provision for foreign withholding taxes associated with a distribution of those earnings has been made. We estimate that, upon distribution of our share of these earnings, we would be subject to withholding taxes of approximately $3.5 million as of September 30, 2020. We provided deferred income taxes on all undistributed earnings from Cash Converters International.

The following table presents a rollforward of unrecognized tax benefits:

	Fiscal Year Ended September 30,
	2020		2019		2018
	(in thousands)
Beginning balance	$	1,435	$	3,091	$	6,530
Increase for tax positions taken during a prior period	1,401		—		963
Increase for tax positions taken during the current period	249		—		—
Decrease for tax positions as a result of the lapse of the statute of limitations	—		(1,656)		(4,402)
Ending balance	$	3,085	$	1,435	$	3,091

All of the above unrecognized tax benefits, if recognized, would impact our effective tax rate for the respective period of each ending balance. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During 2020, 2019, and 2018, the Company recognized income tax expense consisting of interest and penalties of $1.2 million, $0.2 million and $(0.3) million, respectively, due to the accrual of current year interest and penalties on existing positions offset by the reversal of previous accruals due to the lapse of the statute of limitations. The total amount of accrued interest and penalties was $1.5 million and $0.3 million in 2020 and 2019, respectively.

We are subject to U.S., Mexico, Canada, Guatemala, Honduras, El Salvador, Peru and the Netherlands income taxes as well as income taxes levied by various state and local jurisdictions. With few exceptions, we are no longer subject to examinations by tax authorities for years before the tax year ended September 30, 2014. We believe that adequate provisions have been made for any adjustments that may result from tax examinations.