INCOME TAXES

9 Months Ended

Apr. 30, 2017

NOTE 4 – INCOME TAXES

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period.

The effective Federal and State tax rate related to our provision for income taxes in the three and nine months ended April 30, 2017 is 38% and 39%, respectively compared to 33% for the three and nine-month periods ended April 30, 2016. The higher rate used in the periods ended April 30, 2017 is due to the prior year permanent differences from the goodwill impairment.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.

For the three and nine-month periods ended April 30, 2017, we have recognized income tax expense of $106 and $303, respectively, for our estimated federal and state income tax provision including both current and deferred income taxes. Realization of our deferred tax asset is dependent upon future earnings in specific tax jurisdictions, the timing and amount of which are uncertain. As of April 30, 2017, our net deferred tax asset was $2,344 .

We account for any uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We measure the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. As such, we are required to make subjective assumptions and judgments regarding income tax exposures. The result of the assessment of our tax positions did not have a significant impact on the consolidated financial statements.

ITEX CORP 10-Q