v3.26.1
Note 9 - Income Taxes
 12 Months Ended
Jun. 30, 2026
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 9.

Income Taxes

 

Components of the provision for income taxes were as follows:

 

  

Year Ended June 30,

 
  

2026

  

2025

 

Current:

        

Current federal

 $1,908,000  $2,478,000 

Current state

  725,000   579,000 

Total current

  2,633,000   3,057,000 

Deferred:

        

Deferred federal

  449,000   (311,000)

Deferred state

  (23,000)  1,000 

Total deferred

  426,000   (310,000)

Total income tax expense

 $3,059,000  $2,747,000 

 

 

Actual income tax expense differs from the expected tax expense, computed by applying the statutory federal income tax rate to the Company’s earnings before income taxes, as follows:

 

  

Year Ended June 30,

 
  

2026

  

2025

 
  Amount  Percentage  Amount  Percentage 

Tax expense at statutory federal rate

 $3,015,000   21.0% $2,160,000   21.0%

Domestic federal

                

Tax credits

                

Research and development credit

  (134,000)  (0.9)%  —   — 

Nontaxable and nondeductible items

                

Meals and entertainment

  225,000   1.6%  207,000   2.0%

Stock-based compensation

  (641,000)  (4.5)%  (1,016,000)  (9.9)%

Non-deductible officer's compensation

  56,000   0.4%  897,000   8.7%

Other non-deductible expenses

  3,000   0.0%  —   — 

Other adjustments

                

Other reconciling items

  (20,000)  (0.2)%  40,000   0.4%

State taxes, net of federal benefit

  555,000   3.9%  459,000   4.5%

Total income tax expense

 $3,059,000   21.3% $2,747,000   26.7%

 

The effective tax rates for fiscal 2026 and 2025 were 21.3% and 26.7%, respectively.

 

The components of income before income taxes are as follows:

 

  

Year Ended June 30,

 
  

2026

  

2025

 

The components of income before income taxes

        

Domestic

 $14,360,000  $10,284,000 

Foreign

  —   — 

Total

 $14,360,000  $10,284,000 

 

The significant components of deferred income taxes were as follows:

 

  

As of June 30,

 
  

2026

  

2025

 

Deferred tax assets:

        

Revenue recognition and accounts receivable reserves

 $1,362,000  $1,247,000 

Inventory reserve

  91,000   68,000 

Warranty reserve

  474,000   405,000 

Accrued compensation

  30,000   21,000 

UNICAP

  48,000   35,000 

Stock based compensation

  1,179,000   901,000 

Lease liability

  34,000   49,000 

MN R&D tax credits

  232,000   205,000 

Amortization

  —   16,000 

Capitalized research and development

  38,000   428,000 

Subtotal

  3,488,000   3,375,000 

Less: Valuation allowance

  (232,000)  (205,000)

Net deferred tax assets

  3,256,000   3,170,000 

Deferred tax liabilities:

        

Property and equipment

  (716,000)  (556,000)

Prepaid insurance

  (90,000)  — 

Right of use asset

  (33,000)  (49,000)

Allowance for returned inventory

  (117,000)  (97,000)

Amortization

  (264,000)  — 

Other deferred tax liabilities

  —   (6,000)

Deferred tax liabilities

  (1,220,000)  (708,000)

Total net deferred tax assets

 $2,036,000  $2,462,000 

 

 

The following is a schedule of cash paid for income taxes:

 

  

Year Ended June 30,

 
  

2026

  

2025

 

Jurisdiction

        

U.S. Federal

 $2,571,000  $2,995,000 

State

  822,000   747,000 

Foreign

  —   — 

Total cash paid for income taxes (net of refunds)

 $3,393,000  $3,742,000 

 

The Company has research and development state tax credit carryforwards, net of federal tax impacts, of $232,000 and $205,000 as of June 30, 2026, and June 30, 2025, respectively. Based on the historical use of the credits, management believes it is more likely than not these credits will expire unused between fiscal years 2026 and 2038. As of June 30, 2026, and June 30, 2025, the Company had a valuation allowance of $232,000 and $205,000, respectively, related to its research and development state tax carryforwards.

 

The Company’s effective tax rates for the fiscal years ended June 30, 2026, and 2025 differ from its 21% U.S. statutory corporate tax rate due to the impact of state income taxes, permanent tax differences, the tax impact of the vesting of restricted stock units, and changes in the Company’s deferred tax asset valuation allowance. The effective tax rate in any year or quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. The effective income tax rate for the fiscal years ended June 30, 2026, and 2025 were 21.3% and 26.7%, respectively.

 

The Company applies the accounting standard for uncertain tax positions pursuant to which a more-likely-than-not threshold is utilized to determine the recognition and derecognition of uncertain tax positions. Once the more-likely-than-not threshold is met, the amount of benefit to be recognized is the largest amount of tax benefit that is greater than 50 percent likely of being ultimately realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such a change. The Company does not believe that it has any material uncertain tax positions as of June 30, 2026, and June 30, 2025.

 

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. With limited exceptions, the Company is no longer subject to federal and state income tax examinations by tax authorities for fiscal years ended prior to June 30, 2023. The Company is not under any current income tax examinations by any other state or local taxing authority. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

 

The One, Big, Beautiful Bill Act (the “Act”) was signed into law on July 4, 2025. The Act contains tax law changes with various effective dates affecting business taxpayers. Among the tax law changes are provisions affecting the Company related to the timing of certain tax deductions, including depreciation expense, research and development expenditures, and interest expense. The Company adopted the applicable provisions of the Act during fiscal 2026. The Act did not have a material impact on the Company's overall income tax expense for the year ended June 30, 2026; however, certain provisions of the Act affected the timing of tax deductions and resulted in changes in the relative amounts of current and deferred tax expense.