LSI INDUSTRIES INC Income Taxes Disclosure

NOTE 13 — INCOME TAXES

 

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

 

 

(In thousands)		2025				2024
Components of income (loss) before income taxes:
United States		$	30,083			$	32,295
Foreign			2,955				804
Income before income taxes		$	33,038			$	33,099
Provision for income taxes
U.S. Federal		$	8,403			$	6,909
Foreign			700				(30	)
State and local			1,933				2,851
Total current		$	11,036			$	9,730
Deferred			(2,381	)			(1,608	)
Total provision for income taxes		$	8,655			$	8,122

 

(In thousands)		2025				2024
Reconciliation to federal statutory rate:
Federal statutory rate			21.0				21.0
State and local taxes, net of federal benefit			3.5				4.2
Foreign operations			(0.1	)			(0.5	)
Federal tax credits			(0.9	)			(1.1	)
Officer's Compensation			1.8				1.9
Transaction costs			0.7				-
Uncertain tax position activity			0.4				0.5
Stock-based compensation			(2.8	)			(2.3	)
Tax rate changes			-				-
Other			2.6				0.8
Effective tax rate			26.2				24.5

 

The components of deferred income tax assets and (liabilities) at June 30, 2025, and 2024 are as follows:

 

Components of deferred income tax assets and liabilities
(In thousands)			2025				2024
Uncertain tax positions			$	241			$	241
Reserves against current assets				2,384				1,408
Accrued expenses				3,962				3,029
Deferred compensation				2,479				2,008
Stock-based compensation				2,017				1,859
Capitalized R&D				3,885				1,985
State net operating loss carryover and credits				108				120
Lease Liability				4,841				4,187
Canadian NOL				-				313
U.S. Federal net operating loss carryover and credits				-				52
Deferred income tax asset before valuation allowance				19,917				15,202
Valuation allowance				(108	)			(108	)
Deferred income tax asset				19,809				15,094
Goodwill, acquisition costs and intangible assets				(7,578	)			(3,977	)
Depreciation				(3,436	)			(2,048	)
Right of Use Asset				(4,702	)			(4,149	)
Deferred income tax liability				(15,716	)			(10,174	)
Net deferred income tax asset			$	4,093			$	4,920

 

The Company has deferred tax assets for US research and development credits of $0 and $0.1 million at June 30, 2025, and June 30, 2024, respectively.  The Company has Canadian net operating loss carry forward deferred tax assets of $ 0.1 and $ .3 million at June 30, 2025, and June 30, 2024, respectively.

 

The Company has state net operating loss carryovers and tax credit deferred tax assets of $0 and $0.1 million at June 30, 2025, and June 30, 2024, respectively. A valuation allowance of $0.1 million exists at June 30, 2025, 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, 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 $ 1.8 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 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 expense/(benefit) in both fiscal 2025 and fiscal 2024, related to the change in reserves for uncertain tax positions. The Company recognized interest net of federal benefit and penalties of $12,000 and $21,000, respectively, in fiscal 2025, and $17,000 and $37,000, respectively, in fiscal 2024. The reserve for uncertain tax positions is not expected to change significantly in the next twelve months. 

 

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

 

(In thousands)		2025				2024
Balance at the beginning of the fiscal year		$	825			$	656
Decreases - tax positions in prior period			(101	)			(63	)
Increase - tax positions from acquired company			1,149				-
Increase - tax positions in current period			213				232
Balance at end of the fiscal year		$	2,086			$	825

 

The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax returns in several 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, 2022.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. There are a variety of effective dates in the Act and only certain key provisions with financial reporting implications are expected to affect our financial statements for the year ending June 30, 2026. We expect to monetize our capitalized R&D deferred tax asset of $3,885 in the next fiscal year as a result of the recently enacted legislation.