Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.23.2
INCOME TAXES
 12 Months Ended
May 31, 2023
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

NOTE 22 – INCOME TAXES

 

The Company accounts for income taxes under FASB ASC 740-10, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.

 

The components of the income tax provision include:

 

   

Year Ended May 31,

  
   

2023

    

2022

  

Revenue

   $ 23,133,607     $ 22,662,895  

Directly attributable costs

     (12,558,964

)

     (12,941,530

)

Deferred

     10,574,643       9,721,365  

Tax rate

     21

%

     21

%

Tax expense

   $ 2,220,675     $ 2,041,487  

 

Note: Change in uncertain tax position with all tax expense recorded in current year due to change in estimate. No prior year net operating loss was considered.

 

The tax effects of the temporary differences that give rise to the Company’s estimated deferred tax assets and liabilities are as follows:

 

   

Year Ended May 31,

 
   

2023

    

2022

  

Federal and state statutory tax

     21

%

     21

%

Net operating loss carryforward

   $ 3,347,183     $ 2,563,035  

Valuation allowance for deferred tax assets

     (3,347,183

)

     (2,563,035

)

Deferred tax assets

   $ -     $ -  

 

The total net operating loss carryforward at May 31, 2023 and 2022 was $15,938,966 and $12,204,928, respectively.

 

Section 280E of the Internal Revenue Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act). The IRS has invoked Section 280E in tax audits against various cannabis businesses in the U.S. that are permitted under applicable state laws. Although the IRS has issued a clarification allowing the deduction of certain expenses, the bulk of operating costs and general administrative costs are generally not permitted to be deducted. The operations of certain of the Company’s subsidiaries are subject to Section 280E. This results in permanent differences between ordinary and necessary business expenses deemed non-deductible under IRC Section 280E. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income or loss.