INCOME TAXES

12 Months Ended

Dec. 31, 2024

INCOME TAXES

INCOME TAXES

11.  INCOME TAXES

The provision (benefit) for income taxes consists of the following:

	For the Years Ended December 31,
	2024		2023		2022
Current tax provision (benefit)
Federal	$	(33,734)	$	33,734	$	1,448,000
State		7,893		(65,529)		(8,711,302)
Total current provision (benefit)		(25,841)		(31,795)		(7,263,302)
Deferred tax provision (benefit)
Federal		8,285,927		(1,855,875)		3,717,559
State		106,104		(17,491)		3,629,613
Total deferred tax provision (benefit)		8,392,031		(1,873,366)		7,347,172
Total income tax provision	$	8,366,190	$	(1,905,161)	$	83,870

The Company uses the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes (“Topic 740”), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence  should be commensurate with the extent to which it can be objectively verified. The Company reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets, to evaluate the need for a valuation allowance.  As a result of this review, as of December 31, 2024, the Company concluded that a $9.1 million valuation is needed on the net deferred tax asset.

As of December 31, 2023, the Company had federal net operating losses of $20.8 million with no expiration date and state net operating losses of $4.9 million which will begin to expire in 2029.

Utilization of the federal net operating loss carry forwards and credits may be subject to a substantial annual limitation due to the ownership change limitations under Internal Revenue Code Section 382.  State net operating losses and credits are subject to limitations under similar rules.

Deferred taxes are provided for those items reported in different periods for income tax and financial reporting purposes.  The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:

	December 31,
	2024		2023
Deferred tax assets
Net operating loss carry forwards	$	8,466,565	$	4,654,612
Accrued expenses and reserves		647,654		782,233
Employee stock option expense		13,311		13,311
Inventories		345,926		299,276
Deferred income – TIA contract		13,495,321		14,742,111
Capital loss		269,651		188,270
Interest expense limitation		-		—
Deferred tax assets		23,238,428		20,679,814
Deferred tax liabilities
Unrealized gains/losses		(1,088,481)		1,194,734
Property, plant, and equipment		(13,046,294)		(13,199,805)
Deferred tax liabilities		(14,134,775)		(12,005,071)
Net deferred assets		9,103,653		8,674,743
Valuation allowance		(9,103,653)		(282,713)
Net deferred tax assets	$	0	$	8,392,030

*Certain totals may not reconcile due to rounding.

Deferred income tax calculations reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss carry forwards, and are stated at the U.S. tax rate of 21%. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

Deferred tax assets are periodically reviewed for realizability.  The Company establishes a valuation allowance for its net deferred tax asset when future taxable income is not reasonably assured.  As of December 31, 2023 and 2022, the Company determined that a $283 thousand valuation allowance was needed for the state net operating losses.  

Under the Tax Cuts and Jobs Act, net operating losses incurred after December 31, 2017 can only offset 80% of taxable income.  However, these net operating losses may be carried forward indefinitely instead of limited to twenty years under previous tax law. Carryback of these losses is no longer permitted.

The CARES Act temporarily removed the 80% of taxable income limitation to allow NOL carryforwards to fully offset income.  For tax years beginning after 2021, the Company can take: (1) a 100% deduction of NOLs arising in tax years prior to 2018, and (2) a deduction limited to 80% of modified taxable income for NOLs arising in tax years after 2017.

A reconciliation of the federal statutory corporate tax rate to the Company’s effective tax rate is as follows:

	December 31,
	2024		2023		2022
U.S. statutory federal tax rate	21.0		21.0	%	21.0	%
State tax, net of federal tax	(0.6)		0.8		1.0
Change in valuation allowance	(250.6)		—		5.5
Valuation Allowance	—		(0.2)		4
Stock options	—		—		10.8
Section 162(m); Limit on Compensation	(0.8)		(0.2)		30.9
State rate change	—		—		(75.1)
Return-to-provision and other	(6.7)		0.1		3.7
Effective tax rate	(237.7)	%	21.5	%	1.6	%

During 2022, the Company engaged tax consultants to perform a nexus study in order to determine if its activities in certain states were subject to previously estimated tax liabilities.  As a result of the study, the Company determined that its activities in those states are protected by P.L. 86-272 and revised its estimates for state taxes.  The Company has further determined that it is more likely than not that the various state jurisdictions will agree that the Company’s activities are protected under P.L. 86-272 and the revised estimates for refund applications are appropriate.

The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions.  The Company’s federal income tax returns for all tax years ended on or after December 31, 2009, remain subject to examination by the Internal Revenue Service.  The Company’s state and local income tax returns are subject to examination by the respective state and local authorities over various statutes of limitations, most ranging from three to five years from the date of filing.