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v2.4.0.6
Note 3 - Income Taxes
12 Months Ended
Sep. 30, 2012
Income Tax Disclosure [Text Block]
3.  INCOME TAXES

The provision for income taxes consists of the following:

   
2012
   
2011
 
Current:
           
Federal
  $ 1,840,000     $ 3,069,000  
State
    781,000       902,000  
      2,621,000       3,971,000  
Deferred:
               
Federal
    (223,000 )     162,000  
State
    (38,000 )     27,000  
      (261,000 )     189,000  
    $ 2,360,000     $ 4,160,000  

The difference between the statutory federal income tax rate and the Company’s effective rate is summarized below:

   
2012
   
2011
 
             
Statutory federal income tax rate
    34.0 %     34.1 %
State franchise taxes (net of federal tax benefit)
    5.8       5.8  
Reversal of liability for uncertain tax position
    (3.6 )     ---  
Other, primarily dividends received deduction and domestic production activity deduction
    (6.4 )     (5.2 )
Effective tax rate
    29.8 %     34.7 %

At September 30, 2012, the Company’s deferred income tax liabilities were comprised of the following:

   
2012
   
2011
 
Deferred tax assets attributable to:
           
Accrued liabilities, including supplemental compensation, vacation pay accrual and fiscal 2012 impairment losses on investments
  $ 2,952,000     $ 2,307,000  
Bad debt reserves not yet deductible
    80,000       100,000  
Depreciation and amortization
    49,000       369,000  
Other
    262,000       306,000  
Total deferred tax assets
    3,343,000       3,082,000  
                 
Deferred tax liabilities attributable to:
               
Unrealized gains on investments
    (20,898,000 )     (9,772,000 )
Net deferred income taxes
  $ (17,555,000 )   $ (6,690,000 )

Based on the Company’s assessment of the future realizability of its deferred assets, including the consideration of historical levels of income, expectations and risks associated with estimates of future taxable income, no valuation allowance was recorded as of September 30, 2012 and 2011.

On a pretax profit of $7,901,000 and $12,000,000 for the twelve months ended September 30, 2012 and 2011, respectively, the Company recorded a tax provision of $2,360,000 and $4,160,000 respectively, which was lower in each case than the amount computed using the statutory rate because of (i) the available dividends received deduction and the domestic production activity deduction, and (ii) the reversal of an uncertain tax liability as the Company reached an agreement with the Internal Revenue Service in March 2012 to settle the Company’s previously claimed research and development credits in its tax returns for the years 2002 to 2007.  As a result, the Company’s previously recorded provision for this matter of approximately $700,000 was reduced by $282,000.  Consequently, the Company’s effective tax rate was about 30% and 35% for fiscal 2012 and 2011, respectively.   The Company files federal income tax returns in the United States and with various state jurisdictions, and it is no longer subject to examinations for the years before 2010 with regard to federal income taxes.

At September 30, 2012, there was no unrecognized tax liability for the uncertain tax positions. A reconciliation of the beginning and ending balance for liabilities associated with unrecognized tax liabilities is as follow:

   
2012
   
2011
 
Beginning balance
  $ 700,000     $ 700,000  
Tax payment upon settlement
    (418,000 )     ---  
Reduction adjustment
    (282,000 )     ---  
Ending balance
  $
---
    $ 700,000