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Income Taxes
 12 Months Ended
Sep. 30, 2023
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)202320222021
Domestic*$26,209 $49,937 $2,320 
Foreign25,424 17,776 13,742 
$51,633 $67,713 $16,062 
*    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)202320222021
Current:   
Federal$18,753 $9,465 $(479)
State and foreign7,219 3,143 4,646 
 25,972 12,608 4,167 
Deferred:   
Federal(11,182)983 3,202 
State and foreign(1,620)3,962 81 
 (12,802)4,945 3,283 
 Total income tax expense$13,170 $17,553 $7,450 
    
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)202320222021
Income tax expense (benefit) at the federal statutory rate$10,843 $14,223 $3,374 
State taxes, net of federal benefit1,814 1,728 931 
Mexico inflation adjustment(1,787)(2,089)(1,217)
Non-deductible items2,655 1,705 2,087 
Foreign rate differential2,381 1,306 1,111 
Change in valuation allowance311 660 (137)
Stock compensation(62)(161)293 
Uncertain tax positions(174)(2,025)208 
Deferred tax true-up(165)3,811 896 
Dividends received deduction(754)(699)— 
Non-deductible loss on debt restructuring1,710 — — 
U.S. GAAP/statutory book adjustments(1,143)— — 
Other(2,459)(906)(96)
Total income tax expense$13,170 $17,553 $7,450 
Effective tax rate26 %26 %46 %
The following table shows significant components of our deferred tax assets and liabilities:
 September 30,
(in thousands)20232022
Deferred tax assets:  
Cash Converters $20,364 $14,299 
Tax over book inventory8,186 7,942 
Accrued liabilities11,043 8,384 
Pawn service charges receivable2,764 2,507 
Stock compensation1,645 887 
Foreign tax credit1,696 1,696 
State and foreign net operating loss carryforwards14,547 16,220 
Book over tax depreciation7,298 5,574 
Other7,612 3,943 
Total deferred tax assets before valuation allowance75,155 61,452 
Valuation allowance(16,885)(17,966)
Total deferred tax assets, net58,270 43,486 
Deferred tax liabilities:  
Tax over book amortization30,906 29,663 
Prepaid expenses2,097 2,051 
Total deferred tax liabilities33,003 31,714 
Net deferred tax asset$25,267 $11,772 
As of September 30, 2023, we had state net operating loss carryforwards of approximately $25.9 million, which begin to expire in 2024 if not utilized. We also had foreign net operating loss carryforwards of $52.7 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 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 $1.1 million in fiscal 2023, 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 $99.8 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 $5.0 million as of September 30, 2023. 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)202320222021
Beginning balance$3,568 $4,763 $3,085 
Increase for tax positions taken during a prior period396 547 2,135 
Decrease for settlement for tax positions taken during a prior period(259)— — 
Decrease for tax positions as a result of the lapse of the statute of limitations(412)(1,742)(457)
Ending balance$3,293 $3,568 $4,763 
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 2023, the Company recognized income tax expense of $0.2 million offset by the reversal of previously accrued interest and penalties of $0.4 million due to the lapse of the statute of limitations on the associated tax position and an income tax benefit of $0.8 million during 2022 and an income tax expense of $0.3 million during 2021, related to interest and penalties. The total amount of accrued interest and penalties was $0.7 million, $1.0 million and $1.8 million in 2023, 2022 and 2021, 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.