Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.10.0.1
Income Taxes
9 Months Ended
Aug. 31, 2018
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES

CCA and its subsidiaries file a consolidated federal income tax return.
The Company previously adopted the provisions of ASC Subtopic 740-10-25, Uncertain Tax Positions. Management believes that there were no unrecognized tax benefits, or tax positions that would result in uncertainty regarding the deductions taken, as of August 31, 2018 and August 31, 2017. ASC Subtopic 740-10-25 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.
As a result of the enactment by the United States Government of public law 115-97, an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (formerly known as the Tax Cut and Jobs Act of 2017), federal corporate tax rates for periods beginning after January 1, 2018 have been reduced to 21%. The Company's federal rate was previously 34%. The Company values its deferred tax assets and liabilities using the tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The Company, prior to the enactment of public law 115-97, had valued its deferred tax assets and liabilities at a combined federal and state tax rate of 36.45%. Due to the corporate tax rate change, the Company determined that its deferred tax assets and liabilities should be valued based on an estimated future tax rate of 24.13%, effective in the first quarter of fiscal 2018.
The SEC issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of public law 115-97. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. To the extent that a company’s accounting for certain income tax effects of public law 115-97 is incomplete but is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. The change in rate caused the Company to record an additional tax expense as part of the provision for income tax in the first quarter of fiscal 2018. In addition, ASU 2015-17 is effective with the first quarter of fiscal 2018 which requires that all deferred tax assets be classified as long-term. The Company as of November 30, 2017 had $2,079,988 of deferred tax assets that were recorded as a current asset. This amount has been retrospectively reclassified as a non-current asset as of November 30, 2017.
The following chart shows the calculation of the previous tax rate and the new tax rate:

 
Previous Rate
New Rate
Federal rate
34.00
%
21.00
%
State rate, net of federal tax benefit
2.45
%
3.13
%
Total
36.45
%
24.13
%


A portion of the loss carry forward deferred tax asset was valued at a slightly higher blended rate of 25.19%, due to the tax law taking effect on January 1, 2018.
The deferred compensation amount is from the issuance of stock options (see Note 12 - Stock-Based Compensation), and will be realized in future years if the options are exercised.


At August 31, 2018 and November 30, 2017, respectively, the Company had temporary differences arising from the following:
 
 
August 31, 2018
 
November 30, 2017
Type
 
Amount
 
Deferred Tax
 
Amount
 
Deferred Tax
Depreciation
 
$
(468,017
)
 
$
(112,925
)
 
$
(378,580
)
 
$
(137,992
)
Reserve for bad debts
 
15,368

 
3,708

 
6,629

 
2,416

Reserve for returns
 
619,185

 
149,399

 
246,513

 
89,854

Accrued returns
 
110,436

 
26,646

 
109,646

 
39,966

Reserve for obsolete inventory
 
135,164

 
32,613

 
158,269

 
57,689

Vacation accrual
 
52,233

 
12,603

 
70,856

 
25,827

Alternative minimum tax carry forward
 

 
103,040

 

 
122,360

Research and development tax credit
 

 
65,175

 

 

Deferred Compensation
 
491,382

 
118,563

 
487,061

 
177,534

Bonus obligation unpaid
 

 

 
400,166

 
145,861

Charitable contributions
 
242,650

 
58,548

 
305,633

 
111,403

Section 263A costs
 
208,120

 
50,216

 
48,317

 
17,612

Loss carry forward
 
24,789,723

 
5,990,894

 
24,279,259

 
8,849,789

Net deferred tax asset
 
$
26,196,244

 
$
6,498,480

 
$
25,733,769

 
$
9,502,319




Income tax expense (benefit) is made up of the following components:
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2018
 
August 31, 2017
 
August 31, 2018
 
August 31, 2017
 
 
 
 
 
 
 
 
Current tax - Federal
$

 
$
43,875

 
$

 
$
59,875

Current tax - State & Local
595

 
312

 
5,944

 
6,189

Deferred tax
(70,273
)
 
310,629

 
3,023,507

 
816,846

Total Income Tax (Benefit) Expense
$
(69,678
)
 
$
354,816

 
$
3,029,451

 
$
882,910



Prepaid and refundable income taxes are made up of the following components:
Prepaid and refundable income taxes
 
Federal
 
State &
Local
 
Total
August 31, 2018
 
$
20,335

 
$
7,449

 
$
27,784

November 30, 2017
 
$
1,015

 
$
37,138

 
$
38,153









Income taxes payable are made up of the following components:
Income Taxes Payable
 
Federal
 
State &
Local
 
Total
August 31, 2018
 
$

 
$
950

 
$
950



A reconciliation of the provision for income taxes computed at the statutory rate to the effective rate for the three months and nine months ended August 31, 2018, and August 31, 2017 is as follows:

 
 
Three Months Ended
 
Three Months Ended
 
 
August 31, 2018
 
August 31, 2017
 
 
Amount
 
Percent of Pretax Income
 
Amount
 
Percent of Pretax Income
Provision for income taxes at federal statutory rate
 
$
(57,404
)
 
21.00
%
 
$
249,050

 
34.00
%
Changes in provision for income taxes resulting from:
 
 
 
 
 
 
 
 
State income taxes, net of federal income tax benefit
 
(8,556
)
 
3.13
%
 
21,242

 
2.90
%
Non-deductible expenses and other adjustments
 
(3,718
)
 
1.36
%
 
84,524

 
11.54
%
(Benefit from) Provision for income taxes at effective rate
 
$
(69,678
)
 
25.49
%
 
$
354,816

 
48.44
%



Nine Months Ended

Nine Months Ended


August 31, 2018

August 31, 2017


Amount

Percent of Pretax Income

Amount

Percent of Pretax Income
Provision for (benefit from) income taxes at federal statutory rate

$
(144,312
)

21.00
 %

$
729,604


34.00
%
Increases in taxes resulting from:










State income taxes, net of federal income tax benefit

(21,509
)

3.13
 %

62,231

 
2.90
%
Change in tax rate related to future deferred tax benefits
 
3,150,147

 
(458.40
)%
 

 
%
Non-deductible expenses and other adjustments

45,125


(6.57
)%

91,075


4.24
%
Provision for income taxes at effective rate

$
3,029,451


(440.84
)%

$
882,910


41.14
%