Annual report [Section 13 and 15(d), not S-K Item 405]

Note 6 - Income Taxes

v3.25.3
Note 6 - Income Taxes
 12 Months Ended
Sep. 30, 2025
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 6. Income Taxes

 

Components of income tax expense (benefit) are as follows for the years ended:

 

   

September 30,

    

September 30,

    

September 30,

  

(In thousands)

  

2025

    

2024

    

2023

  

Current:

                        

Federal

   $ -     $ 385     $ 9,449  

State

     80       (114 )     1,435  

Current income tax expense

     80       271       10,884  

Deferred:

                        

Federal

     1,710       (3,092 )     (1,750 )

State

     567       (427 )     (251 )
Deferred income tax expense (benefit)     2,277       (3,519 )     (2,001 )

Income tax expense (benefit)

   $ 2,357     $ (3,248 )   $ 8,883  

 

The following is a reconciliation of the federal statutory income tax rate to the effective tax rate as a percent of pre-tax income for the following years ended:

 

   

September 30,

    

September 30,

    

September 30,

  
   

2025

    

2024

    

2023

  

Federal statutory rate

     21.0 %     21.0 %     21.0 %

State income taxes

     2.6 %     6.6 %     2.3 %

Permanent differences

     1.3 %     0.0 %     0.5 %

Research and development credits

     0.6 %     1.1 %     (0.9% )

Section 162(m) limitation on officer’s compensation

     2.7 %     0.0 %     0.0 %

Excess tax benefits from stock-based compensation

     (1.1% )     (1.1% )     (1.7% )

Other

     0.0 %     0.0 %     (0.3% )

Effective tax rate

     27.2 %     27.6 %     20.9 %

 

As of September 30, 2025, the current U.S. income tax receivable was approximately $1,544,000. This amount is included in prepaid and other current assets in the Company’s consolidated balance sheet.

 

As of September 30, 2025, the Company has a gross U.S. federal net operating loss (“NOL”) carryforward of $681,000. There was no U.S. federal NOL as of September 30, 2024. As of September 30, 2025 and 2024, there is a gross state NOL of $3,700,000 and $1,259,000, respectively. The Company has not recorded a valuation allowance on these deferred tax assets as the Company believes it is more likely than not they will be utilized. In addition, as of September 30, 2025, and 2024, the Company had Minnesota research and development tax credits of $360,000 and $370,000, respectively. The Company had federal research and development tax credits of $106,000 as of September 30, 2025. There were no federal research and development tax credits as of September 30, 2024. The Company has not recorded a valuation allowance on these research and development related deferred tax assets as the Company believes it is more likely than not they will be utilized before they begin to expire in fiscal year 2037.

 

Significant components of deferred income tax assets and liabilities are as follows at:

 

   

September 30,

    

September 30,

  

(In thousands)

  

2025

    

2024

  

Inventories

   $ 3,521     $ 4,241  

R&D expenses

     1,558       1,328  

Stock-based compensation

     1,223       1,042  
Investment in foreign subsidiary     4,802       -  

Accrued expenses and reserves

     582       427  

Property and equipment depreciation

     654       205  

Net operating loss carry forwards and credits

     804       357  

Total deferred tax asset

   $ 13,144     $ 7,600  

Goodwill

     (906 )     (816 )

Unrealized loss on investments

     -       (16 )

Prepaid expenses

     (284 )     (141 )

Intangibles

     (1,332 )     (254 )

Foreign currency translation gain

     (359 )     (238 )

Total deferred tax liability

   $ (2,881 )   $ (1,465 )

Net deferred tax asset

   $ 10,263     $ 6,135  

 

Realization of NOL carryforwards and other deferred tax temporary differences are contingent upon future taxable earnings. The deferred tax assets and deferred tax liabilities are not netted due to being within different tax jurisdictions. The Company’s deferred tax assets were reviewed for expected utilization by assessing the available positive and negative factors surrounding their recoverability. As of September 30, 2025, and 2024, no valuation allowance was deemed necessary as the Company determined it was more likely than not that the Company’s deferred tax assets will be realized.

 

The Company is required to recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applies the interpretation to all tax positions for which the statute of limitations remained open. The Company had no liability for unrecognized tax benefits and did not recognize any interest or penalties during the years ended September 30, 2025, or 2024.

 

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 the related tax laws and regulations and require significant judgment to apply. Clearfield, Inc. is generally subject to U.S. federal examination for all tax years after 2020 and state examinations for all tax years after 2016 due to unexpired research and development credit carryforwards still open under statute.