Income Taxes

12 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 11: INCOME TAXES

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

	Fiscal Year Ended September 30,
(in thousands)	2022		2021		2020
Domestic*	$	49,937	$	2,320	$	(31,989)
Foreign	17,776		13,742		(38,106)
	$	67,713	$	16,062	$	(70,095)

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

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

	Fiscal Year Ended September 30,
(in thousands)	2022		2021		2020
Current:
Federal	$	9,465	$	(479)	$	(6,631)
State and foreign	3,143		4,646		10,544
	12,608		4,167		3,913
Deferred:
Federal	983		3,202		(1,561)
State and foreign	3,962		81		(3,984)
	4,945		3,283		(5,545)
Total income tax (benefit) expense	$	17,553	$	7,450	$	(1,632)

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,
(in thousands)	2022			2021			2020
Income tax expense (benefit) at the federal statutory rate	$	14,223		$	3,374		$	(14,720)
State taxes, net of federal benefit	1,728			931			951
Mexico inflation adjustment	(2,089)			(1,217)			(1,120)
Non-deductible items	1,705			2,087			772
Foreign rate differential	1,306			1,111			(1,671)
Change in valuation allowance	660			(137)			962
Stock compensation	(161)			293			598
Uncertain tax positions	(2,025)			208			2,849
Non-deductible impairment	—			—			9,093
Deferred tax true-up	3,811			896			—
Other	(1,605)			(96)			654
Total income tax expense (benefit)	$	17,553		$	7,450		$	(1,632)
Effective tax rate	26		%	46		%	2		%

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

	September 30,
(in thousands)	2022		2021
Deferred tax assets:
Cash Converters	$	14,299	$	13,848
Tax over book inventory	7,942		7,595
Accrued liabilities	8,384		7,731
Pawn service charges receivable	2,507		1,195
Stock compensation	887		643
Foreign tax credit	1,696		2,484
State and foreign net operating loss carryforwards	16,220		19,414
Book over tax depreciation	5,574		7,250
Other	3,943		3,562
Total deferred tax assets before valuation allowance	61,452		63,722
Valuation allowance	(17,966)		(19,135)
Total deferred tax assets, net	43,486		44,587
Deferred tax liabilities:
Tax over book amortization	29,663		23,674
Note receivable discount	—		13,483
Prepaid expenses	2,051		1,368
Total deferred tax liabilities	31,714		38,525
Net deferred tax asset	$	11,772	$	6,062

As of September 30, 2022, we had state net operating loss carryforwards of approximately $90.5 million, which begin to expire in 2023 if not utilized. We also had foreign net operating loss carryforwards of $51.3 million, which will begin to expire in 2030 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 and foreign tax credit carryforwards that are not more likely than not to be utilized prior to expiration. The valuation allowance decreased by $1.2 million in fiscal 2022, primarily due to the expiration of the statute of limitations on certain state NOL’s for which a valuation allowance had been recorded as well as a reduction of fully reserved net operating loss carryforward and other deferred tax assets in Canada . 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 $72.5 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 $3.7 million as of September 30, 2022. We provided deferred income taxes on all undistributed earnings from Cash Converters.

The following table presents a roll-forward of unrecognized tax benefits:

	Fiscal Year Ended September 30,
(in thousands)	2022		2021		2020
Beginning balance	$	4,763	$	3,085	$	1,435
Increase for tax positions taken during a prior period	547		2,135		1,401
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	(1,742)		(457)		—
Ending balance	$	3,568	$	4,763	$	3,085

All of the above unrecognized tax benefits, if recognized, would impact our effective tax rate for the respective period of each ending balance. The statute of limitations will expire within the next twelve months with respect to approximately $0.8 million of foreign uncertain tax positions. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During 2022, the Company recognized income tax expense of $0.2 million offset by the reversal of previously accrued interest and penalties of $1.0 million due to the lapse of the statue of limitations on the associated tax position and an income tax expense of $0.3 million and $1.2 million, during 2021 and 2020 respectively, due to the accrual of interest and penalties. The total amount of accrued interest and penalties was $1.0 million, $1.8 million and $1.5 million in 2022, 2021 and 2020, 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, 2016. We believe that adequate provisions have been made for any adjustments that may result from tax examinations.