Pure Cycle Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Aug. 31, 2021

NOTE 10 – INCOME TAXES

The Company recorded income tax expense of $6.5 million and an income tax benefit of $2.2 million for the fiscal years ended August 31, 2021 and 2020. The net expense during the fiscal year ended August 31, 2021, consisted of current income tax expense of $5.8 million and deferred income tax expense of $0.7 million. The deferred tax expense consists of the usage of the Company’s $0.6 million net operating loss carryforwards and the timing difference between book and tax depreciation of fixed assets.

For the years ended August 31, 2021 and 2020, the Company’s effective income tax rate was 24.7% and 24.4%.

No taxes were paid during the year ended August 31, 2021. The Company paid Federal and State tax installments of $1.1 million and $0.2 million during the year ended August 31, 2020.

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 assets as of August 31 are as follows:


	August 31, 2021		August 31, 2020

	(In thousands)
Deferred tax assets (liabilities):
Depreciation and depletion		(2,360)		(1,701)
Non-qualified stock options		547		491
Accrued compensation		141		167
Deferred revenues		41		89
Other		16		45
Net operating loss carryforwards	$	—	$	23
Net deferred tax liability	$	(1,615)	$	(886)

As of August 31, 2021 and 2020, the Company had no liability for unrecognized tax benefits.

Income taxes computed using the federal statutory income tax rate differs from the Company’s effective tax rate primarily due to the following for the fiscal years ended August 31:


	For the Fiscal Years Ended August 31,
	2021		2020
Expected benefit from federal taxes at statutory rate of 21% for the years 2021 and 2020	$	5,584	$	1,873
State taxes, net of federal benefit		973		327
Permanent and other differences		4		2
Stock Compensation		(77)		(28)
NOL true up		-		(8)
Other		(4)		3
Total income tax expense / (benefit)	$	6,480	$	2,169

At August 31, 2021, the Company had no net operating loss carryforwards available for income tax purposes. At August 31, 2020, the Company had $0.1 million of net operating loss carryforwards available for income tax purposes, which were used in fiscal 2021.

During the year ended August 31, 2020, no net operating loss carryforwards expired.

- 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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