Fly-E Group, Inc. Income Taxes Disclosure

10 — INCOME TAX  

 

(a) Income Tax Expense

  

The company conduct business both domestically and internationally and, as a result, the parent company and most of its subsidiaries file a consolidated income tax return in U.S. federal, U.S. states and U.S. Cities, and one of the subsidiaries files a foreign income tax return in certain foreign jurisdictions.

 

The Company will file a consolidated annual U.S. federal tax return for tax year ending March 31, 2025, as well as combined tax returns for New Jersey, New York State, Florida, Texas, California, District of Columbia, Massachusetts, Maryland, and New York City. Most subsidiaries of the Company were incorporated in the State of New York and are subject to the U.S. federal corporate income taxes with a tax rate of 21.0%. The State of New York levies a corporate income tax rate of 8.45% on state-level earnings. In addition, a sum of fixed dollar minimum taxes is imposed on the taxable group members, in accordance with their gross receipts within the State of New York. The City of New York levies a 6.50% city corporate income tax, along with a sum of fixed dollar minimum taxes, applied to taxable group members based on their gross receipts within the city. Five of the Company’s subsidiaries are located in New Jersey, which imposes a state income tax rate of 9.0%. Two of the Company’s subsidiaries is located in Florida, which imposes a state income tax rate of 5.5%. Two subsidiaries of the Company are located in Texas, which imposes a state income tax rate of 0.75% on the appointed state revenue. One of the Company’s subsidiaries is located in California, which imposes a state income tax rate of 8.84%. One of the Company’s subsidiaries is located in District of Columbia, which imposes a state income tax rate of 8.25%. One of the Company’s subsidiaries is located in Massachusetts, which imposes a state income tax rate of 8.25%. One of the Company’s subsidiaries is located in Maryland, which imposes a state income tax rate of 8.00%.

 

The Company’s wholly owned foreign subsidiary in Canada will file a Canadian federal tax return for tax year ending March 31, 2025, as well as Ontario state tax return. It is subject to the Canadian federal corporate income taxes with a tax rate of 15.0% and Ontario state corporate income taxes with a tax rate of 11.5%.

 

Income tax on unappropriated earnings is accrued during the period the earnings arise and adjusted to the extent that distributions are approved by the stockholders in the following year.

 

Income tax expense for the years ended March 31, 2025 and 2024 amounted to $0.34 million and $1.18 million, respectively. Significant components of the provision for income taxes are as follows:

 

		For the years ended March 31,
		2025				2024
Current
Federal		$	94,113			$	474,445
State			183,598				297,885
City			123,284				234,510
Deferred
Federal			(4,000	)			158,300
State			1,000				36,300
City			(2,000	)			21,500
Foreign			(59,829	)			(40,007	)
Total		$	336,166			$	1,182,933

The provision for income taxes is based on the following pretax income (loss):

 

		For the years ended March 31,
		2025				2024
U.S.		$	(4,690,634	)		$	3,275,797
Canada			(264,359	)			(197,642	)
Total		$	(4,954,993	)		$	3,078,155

 

For the years ended March 31, 2025, the total pre-tax loss was $4.9 million, which included $4.7 million pre-tax loss in the U.S. and $0.2 million pre-tax loss in Canada. For the year ended March 31, 2024, the total pre-tax income was $3.1 million, which included $3.3 million pre-tax income in U.S. and $0.2 million pre-tax loss in Canada.

 

The following table reconciles to the Company’s effective tax rate:

 

		For the years ended March 31,
		2025				2024
Pre-tax book (loss) income		$	(4,954,993	)		$	3,078,155
Federal Statutory rate			21.0	%			21.0	%
State income tax rate, net of federal income tax benefit			4.6	%			7.9	%
City income tax rate, net of federal income tax benefit			5.5	%			5.0	%
Foreign statutory rate			0.4	%			—
Permanent differences			(1.2	)%			5.2	%
Valuation allowance of deferred tax assets			(34.6	)%			—
Return to project adjustment			(2.5	)%			(0.8	)%
Total			(6.8	)%			38.3	%

 

Penalties and interest incurred related to underpayment of income tax are classified as income tax expenses in the period incurred. For the years ended March 31, 2025 and 2024, the Company accrued $30,301 and $60,487 income tax related penalty included in current income taxes expenses, respectively.

 

United States

 

Income tax expense for the year ended March 31, 2025 and 2024 amounted to $0.40 million and $1.22 million, respectively.

 

Significant components of the provision for income taxes are as follows:

 

		For the Years Ended March 31,
		2025				2024
Current
Federal		$	94,113			$	474,445
State			183,598				297,885
City			123,284				234,510
Deferred
Federal			(4,000	)			158,300
State			1,000				36,300
City			(2,000	)			21,500
Total		$	395,995			$	1,222,940

Canada

 

Fly Toronto Corp, a subsidiary of the Company, was formed under the laws of Canada and conducts its business primarily in Canada.

 

Income tax benefit for the year ended March 31, 2025 and 2024 amounted to $59,829 and 40,007, respectively. Significant components of the provision for income taxes are as follows:

 

		For the Years Ended March 31,
		2025				2024
Current
Federal		$	—			$	—
State			—				—
City			—				—
Deferred
Federal			(33,866	)			(22,845	)
State			(25,963	)			(17,515	)
City			—				353
Total		$	(59,829	)		$	(40,007	)

 

(b) Deferred Tax Assets (Liabilities)

 

Net DTAs as of March 31, 2025 and 2024 amounted to $94,983 and $35,199, respectively. Significant components of DTAs (DTLs), net are as follows:

 

		As of March 31, 2025				As of March 31, 2024
Net operating loss carry forwards		$	1,506,378			$	40,332
Inventory reserve			410,000				186,000
Operating right-of-use liability			4,837,000				5,810,000
Amortization difference			10,000				—
Total deferred tax assets (DTAs)			6,763,378				6,036,332
Valuation allowance			(1,714,000	)			—
Deferred tax assets, net of valuation allowance		$	5,049,378			$	6,036,332
Accumulated depreciation			(460,395	)			(482,133	)
Operating lease right-of-use assets			(4,494,000	)			(5,519,000	)
Total deferred tax liabilities (DTLs)			(4,954,395	)			(6,001,133	)
Deferred tax assets, net		$	94,983			$	35,199
Deferred tax assets (liabilities) – U.S., net		$	—			$	(5,000	)
Deferred tax assets – Canada, net		$	94,983				40,199

 

As of March 31, 2025 and 2024, the Company had approximately $5.0 million and $6.0 million, respectively, in the DTAs, which respectively included approximately $1.5 million and $40,332 related to net operating loss carryforwards that can be used to offset taxable income in future periods, $4.8 million and $5.8 million related to lease liability, and $0.4 million and $0.2 million related to inventory allowance.

 

As of March 31, 2025 and 2024, the Company had approximately $5.0 million and $6.0 million, respectively, which included $0.5 million and $0.5 million, respectively, in the DTLs that related to accumulated depreciation and $4.5 million and $5.5 million related to ROU assets.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. As of March 31, 2025 and 2024, the Company recorded approximately $94,983 and $40,199, respectively, in the net DTAs. The tax losses in Canada can be carried forward for twenty years to offset future taxable profit. The tax losses of entities in Canada will begin to expire in 2044, if not utilized.   As of March 31, 2025, management considered it more likely than not that the Company will have sufficient taxable income in the future that will allow the Company to realize these net DTAs.

 

As a result of the Tax Cuts and Jobs Act (TCJA), US NOLs arising after December 31, 2017, may be carried forward indefinitely and can offset only up to 80% of taxable income in any future year. Based upon the Company’s recent taxable loss history, the Company performed an analysis and determined that it was necessary to establish a valuation allowance of $1,714,000 with respect to its net deferred income tax assets as of and for the fiscal year ended March 31, 2025.

 

Uncertain Tax Positions

 

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of March 31, 2025 and 2024, the Company did not have any significant unrecognized uncertain tax positions.