Pure Cycle Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

INCOME TAXES

INCOME TAXES

9 Months Ended

May 31, 2021

NOTE 14 – INCOME TAXES

The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items. As of May 31, 2021 the Company is estimating an annual effective tax rate of approximately 25%. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to various factors.

The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. Income tax information for the three and nine months ended May 31, 2021 and 2020 are as follows:


	Three Months Ended						Nine Months Ended
	May 31,			May 31,			May 31,			May 31,
	2021			2020			2021			2020

	(In thousands)
Effective income tax rate		24.7	%		24.8	%		24.7	%		24.6	%
Income tax expense (benefit):
Current	$	(394)		$	21		$	5,283		$	1,265
Deferred		552			(12)			623			710
Total	$	158		$	9		$	5,906		$	1,975
Income taxes paid:
Federal	$	—		$	212		$	—		$	1,089
State		—			22			—			216
Total	$	—		$	234		$	—		$	1,305

Deferred income taxes reflect the tax effects of net operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liability as of May 31, 2021 and August 31, 2020 are as follows:


	May 31, 2021		August 31, 2020

	(In thousands)
Deferred tax assets (liabilities):
Depreciation and depletion		(2,244)		(1,701)
Non-qualified stock options		528		491
Accrued compensation		98		167
Deferred revenues		52		89
Other		57		45
Net operating loss carryforwards	$	—	$	23
Net deferred tax liability	$	(1,509)	$	(886)

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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