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

3 Months Ended

Feb. 28, 2022

NOTE 13 – 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 February 28, 2022, 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 taking into account any items requiring discrete recognition. Income tax information for the three and six months ended February 28, 2022 and 2021 is as follows:


	Three Months Ended						Six Months Ended
(In thousands)	February 28, 2022			February 28, 2021			February 28, 2022			February 28, 2021
Effective income tax rate		22.8	%		24.6	%		23.4	%		24.6	%
Income tax expense (benefit):
Current	$	712		$	5,723		$	1,183		$	5,856
Deferred		(211)			(56)			(205)			71
Total	$	501		$	5,667		$	978		$	5,927
Income taxes paid:
Federal	$	910		$	—		$	4,360		$	—
State		900			—			900			—
Total	$	1,810		$	—		$	5,260		$	—

Deferred income taxes reflect the tax effects of 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 February 28, 2022 and August 31, 2021 are as follows:


(In thousands)	February 28, 2022		August 31, 2021
Deferred tax assets (liabilities):
Depreciation and depletion	$	(2,178)	$	(2,360)
Non-qualified stock options		546		547
Deferred revenues		108		41
Accrued compensation		87		141
Other		27		16
Net deferred tax liability	$	(1,410)	$	(1,615)

- 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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