NOTE 14 — INCOME TAXES  

The following information is provided for the years ended  June 30, 2026, 2025 and 2024:

(a)  In 2026, 2025, and 2024 state and local income taxes in California, Florida, Illinois, Massachusetts, New Jersey, Rhode Island, Texas, Blue Ash (OH) comprise the majority of the state and local income taxes, net of federal effect category.

The components of deferred income tax assets and (liabilities) at  June 30, 2026 and 2025 are as follows:

The Company has US net operating loss carry forward deferred tax assets of $4.8 million and $0 million at June 30, 2026 and June 30, 2025 respectively. The increase of $4.8 million for the year is from the acquisition of SRR Holdings Inc. and has an unlimited carryforward period.  Utilization of the federal net operating loss is limited by Internal Revenue Code Section 382.

The company has Interest expense limitation carry forward deferred tax asset of $1.8 million at June 30, 2026.  The increase of $1.8 million for the year is from the acquisition of SRR Holdings Inc. and has an unlimited carryforward period.  Utilization of the interest expense is limited by Internal Revenue Code Section 382.

The Company has state net operating loss carryovers and tax credit deferred tax assets of $0.9 million and $0 million at June 30, 2026 and June 30, 2025 respectively.  The increase of $0.9 million for the year is from the acquisition of SRR Holdings Inc. A valuation allowance of $0.1 million exists at June 30, 2026, against Oregon tax credits not expected to be used.  The Oregon credits are otherwise expected to expire over a 4-year period beginning June 30, 2027.

At June 30, 2026, tax, interest, and penalties, net of potential federal tax benefits, were $1.7 million, $0.4 million, and $0.2 million, respectively, of the total reserve for uncertain tax positions of $2.3 million. The entire uncertain tax position of $2.3 million, net of federal tax benefit, would impact the effective tax rate if recognized.  An uncertain tax position and tax indemnification receivable of $0.9 million was recognized as a result of the CBH acquisition. The liability for uncertain tax position is included in Other Long-Term Liabilities.

At June 30, 2025, tax, interest, and penalties, net of potential federal tax benefits, were $1.8 million, $0.3 million, and $0.2 million, respectively, of the total reserve for uncertain tax positions of $2.3 million. The entire uncertain tax position of $2.3 million net of federal tax benefit, would impact the effective tax rate if recognized. An uncertain tax position and tax indemnification receivable of $1.1 million was recognized as a result of the CBH acquisition. The liability for uncertain tax position is included in Other Long-Term Liabilities.

At June 30, 2024, tax, interest, and penalties, net of potential federal tax benefits, were $0.6 million, $0.3 million, and $0.2 million, respectively, of the total reserve for uncertain tax positions of $1.1 million. The entire uncertain tax position of $0.6 million, net of federal tax benefit, would impact the effective tax rate if recognized.

The amounts of cash taxes paid by LSI are as follows:

The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Consolidated Statements of Operations. The Company recognized a $(0.1) million net tax (benefit) in fiscal 2026 and a net tax expense of $0.1 million in both fiscal years 2025 and 2024, related to the change in reserves for uncertain tax positions. The Company recognized interest net of federal benefit and penalties of $72,000 and $25,000, respectively, in fiscal 2026, $12,000 and $21,000, respectively, in fiscal 2025, and $17,000 and $37,000, respectively, in fiscal 2024. 

The tax activity in the liability for uncertain tax positions was as follows:

The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax returns in numerous state and local jurisdictions, and also in Canada, Mexico, Jamaica, Barbados, and Puerto Rico. In general, the Company is no longer subject to U.S. Federal, state, and local tax examinations by tax authorities for fiscal years ending prior to June 30, 2023.