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INCOME TAXES | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXESThe Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not more likely than not to be realized. The provision for (benefit from) income taxes at December 31 consists of the following:
(In thousands) | 2022 |  | 2021 |  | 2020
Current |  |  |  |  |
U.S. Federal | $ | 5,338 |  |  | $ | (1,713) |  |  | $ | (8,679) |
State | (153) |  |  | (667) |  |  | (4,539) |
Foreign | 750 |  |  | 1,439 |  |  | 1,036 |
Current | 5,935 |  |  | (941) |  |  | (12,182) |
Deferred |  |  |  |  |
U.S. Federal | 113 |  |  | (237) |  |  | 17,044 |
State | (239) |  |  | (87) |  |  | (92) |
Foreign | 145 |  |  | (117) |  |  | (1,399) |
Deferred | 19 |  |  | (441) |  |  | 15,553 |
Total | $ | 5,954 |  |  | $ | (1,382) |  |  | $ | 3,371 |
The effective tax rates differ from the statutory federal income tax rate as follows:
| 2022 |  | 2021 |  | 2020
Statutory Federal Income Tax Rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Permanent Items |  |  |  |  |
Stock Compensation Expense | (2.2) | % |  | (2.1) | % |  | (0.3) | %
Non Deductible Goodwill Impairment | — | % |  | — | % |  | (10.2) | %
Contingent Consideration Liability Fair Value Adjustment | — | % |  | 1.7 | % |  | — | %
Other | (0.3) | % |  | (0.7) | % |  | — | %
Foreign Tax Rate Differential | (2.8) | % |  | (2.7) | % |  | (1.0) | %
State Income Tax, Net of Federal Income Tax Effect | 1.0 | % |  | 2.2 | % |  | 3.3 | %
Research and Development Tax Credits | 7.7 | % |  | 12.8 | % |  | 2.2 | %
Change in Valuation Allowance | (44.6) | % |  | (29.8) | % |  | (19.2) | %
Net GILTI and FDII Tax Expense | 1.8 | % |  | — | % |  | — | %
Foreign Tax Credit for Dividend Withholding | (1.5) | % |  | 1.7 | % |  | — | %
Tax Rate Change on 2020 Federal Net Operating Loss Carryback | — | % |  | 0.9 | % |  | 1.3 | %
Other | (0.1) | % |  | 0.1 | % |  | (0.1) | %
Effective Tax Rate | (20.0) | % |  | 5.1 | % |  | (3.0) | %
Deferred income taxes reflect the net 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 as well as tax attributes. Significant components of the Company’s deferred tax assets and liabilities at December 31, are as follows:
(In thousands) | 2022 |  | 2021
Deferred Tax Assets: |  |  |
Asset Reserves | $ | 17,680 |  |  | $ | 17,462 |
Deferred Compensation | 6,798 |  |  | 7,424 |
Section 163(j) - Interest Expense Limitation | — |  |  | 891 |
State Investment and Research and Development Tax Credit Carryforwards, Net of Federal Tax | 1,128 |  |  | 4,674 |
Customer Advanced Payments and Deferred Revenue | 1,917 |  |  | 1,301 |
Net Operating Loss Carryforwards and Other | 11,307 |  |  | 15,617 |
Goodwill and Intangible Assets | 1,277 |  |  | 1,082 |
ASC 606 Revenue Recognition | 197 |  |  | 1,817 |
Research & Development Costs | 19,892 |  |  | — |
Lease Liabilities | 3,201 |  |  | 4,178 |
Other | 6,135 |  |  | 5,540 |
Total Gross Deferred Tax Assets | 69,532 |  |  | 59,986 |
Valuation Allowance for Federal and State Deferred Tax Assets and Tax Credit Carryforwards, Net of Federal Tax | (57,369) |  |  | (43,519) |
Deferred Tax Assets | 12,163 |  |  | 16,467 |
Deferred Tax Liabilities: |  |  |
Depreciation | 8,886 |  |  | 9,393 |
ASC 606 Revenue Recognition - Section 481(a) Adjustment | 525 |  |  | 1,030 |
Lease Assets | 2,905 |  |  | 3,539 |
Earnout Income Accrual | — |  |  | 2,603 |
Other | 1,005 |  |  | 1,050 |
Deferred Tax Liabilities | 13,321 |  |  | 17,615 |
Net Deferred Tax Liabilities | $ | (1,158) |  |  | $ | (1,148) |
The net deferred tax assets and liabilities presented in the Consolidated Balance Sheets are as follows at December 31:
(In thousands) | 2022 |  | 2021
Other Assets — Long-term | $ | 712 |  |  | $ | 273 |
Deferred Tax Liabilities — Long-term | (1,870) |  |  | (1,421) |
Net Deferred Tax Liabilities | $ | (1,158) |  |  | $ | (1,148) |
The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Company weighs all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. Losses in recent periods and cumulative pre-tax losses in the three year period ending with the current year, combined with the significant uncertainty brought about by the COVID-19 pandemic, is collectively considered significant negative evidence under ASC 740 when assessing whether an entity can use projected income as a basis for concluding that deferred tax assets are realizable on a more-likely than not basis. For purposes of assessing the recoverability of deferred tax assets, the Company determined that it could not include future projected earnings in the analysis due to the recent history of losses and therefore had insufficient objective positive evidence that the Company will generate sufficient future taxable income to overcome the negative evidence of cumulative losses. Accordingly, during the years ended December 31, 2022, 2021, and 2020, the Company determined that a portion of its deferred tax assets are not expected to be realizable in the future. As a result, the Company recorded a provision for valuation allowances against its U.S. federal deferred tax assets of approximately $11.9 million, $6.0 million, and $23.3 million during the years ended December 31, 2022, 2021 and 2020, respectively. In addition, during the years ended December 31, 2022 and 2021, the Company recorded a valuation allowance against certain foreign deferred tax assets of approximately $0.4 million and $1.3 million, respectively. Beginning January 1, 2022, the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the option to deduct research and development expenditures in the current year and now requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code (“IRC”) Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses. As a result of this provision of the TCJA, deferred tax assets related to capitalized research expenses increased by approximately $19.9 million during the year ended December 31, 2022. Given the recent history of losses, the Company determined that it could not include future projected income as a source of taxable income to realize this deferred tax asset in the future. As a result, a valuation allowance has been recorded. At December 31, 2022, gross federal net operating losses, amounted to approximately $3.1 million. In the current year, the Company generated approximately $51.5 million of taxable income, net of utilized net operating losses of approximately $25.7 million. The remaining prior year carry forward net operating losses of approximately $3.1 million can be carried forward and are subject to annual limitations under Internal Revenue Code Section 382. Of these net operating losses, $2.7 million expire in 2038 and the remaining $0.4 million will carryforward indefinitely. Given the recent history of losses, the Company determined that it could not include future projected income as a source of taxable income to realize this deferred tax asset in the future. As a result, a valuation allowance has been recorded. At December 31, 2022, gross state net operating loss carryforwards amounted to approximately $134.1 million. These state net operating loss carryforwards begin to expire at various dates from 2022 through 2042. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in certain states in the future along with the recent history of losses resulting in the Company excluding future projected income as a source of taxable income to realize certain of these state net operating losses in the future, a valuation allowance has been recorded. At December 31, 2022, state income tax credit carryforwards amounted to approximately $1.1 million and begin to expire at various dates from 2022 to 2037. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in certain states in the future along with the recent history of losses resulting in the Company excluding future projected income as a source of taxable income to realize certain of these state net operating losses in the future, a valuation allowance has been recorded. At December 31, 2022, the Company has approximately $0.2 million of foreign tax credits that it can carry forward through 2031. Given the recent history of losses, the Company determined that it could not include future projected income as a source of taxable income to realize this deferred tax asset in the future. As a result, a valuation allowance has been recorded. During the year ended December 31, 2020, the Company determined that a revised state filing position could be taken which would reduce the taxable income apportioned for state income tax purposes and recorded a state income tax receivable of approximately $3.0 million as a component of Prepaid Expenses and Other Current Assets. The Company has filed amended state income tax returns for tax years 2015 and 2016 and intends to file amended state income tax returns for tax years 2017 through 2019 in order to claim these refunds. The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. Should the Company need to accrue a liability for uncertain tax benefits, any interest associated with that liability would be recorded as interest expense. Penalties, if any, would be recorded as operating expenses. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:
(in thousands) | 2022 |  | 2021 |  | 2020
Balance at Beginning of the Year | $ | 1,412 |  |  | $ | 1,890 |  |  | $ | 2,565 |
Decreases as a Result of Tax Positions Taken in Prior Years | (969) |  |  | (478) |  |  | (775) |
Increases as a Result of Tax Positions Taken in the Current Year | — |  |  | — |  |  | 100 |
Balance at End of the Year | $ | 443 |  |  | $ | 1,412 |  |  | $ | 1,890 |
There are no material penalties or interest liabilities accrued as of December 31, 2022, 2021, or 2020, nor are any material penalties or interest costs included in expense for each of the years ended December 31, 2022, 2021 and 2020. The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2019 through 2022 for federal purposes and 2017 through 2022 for state purposes. Pretax income (loss) from the Company’s foreign subsidiaries amounted to approximately $0.1 million, $(3.3) million and $(7.0) million for 2022, 2021 and 2020, respectively. The balance of pretax earnings or loss for each of those years were domestic. Historically, we have asserted that the unremitted earnings of our foreign subsidiaries were indefinitely reinvested. However, as of December 31, 2022, we determined that we can no longer assert indefinite reinvestment on approximately $3.4 million of the unremitted earnings of Luminescent Systems Canada Inc. As a result, we have recorded a deferred tax liability of approximately $0.2 million at December 31, 2022, related to local country withholding taxes that are expected to be incurred upon ultimate repatriation of such earnings. All other foreign unremitted earnings, which total approximately $11.3 million, continue to be indefinitely reinvested. We continue to be permanently reinvested in outside basis differences other than unremitted earnings as we have no plans to liquidate or sell any foreign subsidiaries. In addition, we have not provided deferred taxes on any outside basis differences of our domestic subsidiaries as we have the ability and intent to recover these basis differences in a tax-free manner. It is not practicable to determine the amount of unrecognized deferred tax related to these basis differences. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the economic uncertainty resulting from the COVID-19 pandemic. The CARES Act includes many measures to assist companies, including temporary changes to income and non-income based laws, some of which were enacted as part of the Tax Cuts and Jobs Act of 2017 (“TCJA”). Some of the key changes include eliminating the 80% of taxable income limitation by allowing corporate entities to fully utilize NOLs to offset taxable income in 2018, 2019 and 2020, allowing NOLs originating in 2018, 2019 and 2020 to be carried back five years, enhanced interest deductibility, and retroactively clarifying the immediate recovery of qualified improvement property costs rather than over a 39-year recovery period. As a result of the on-going COVID-19 pandemic, the Company generated a significant tax loss for the year ended December 31, 2020, which was carried back under the CARES Act to recover previously paid income taxes. During the years ended December 31, 2021 and 2020, the Company recorded a tax benefit relating to the NOL carryback provisions and the technical correction for qualified improvement property provided for in the CARES Act of approximately $0.3 million and $1.5 million respectively. No tax benefit was recorded for the year ending December 31, 2022. The Inflation Reduction Act of 2022 (IRA) was signed into law on August 16, 2022. Key provisions under the IRA include a 15% corporate alternative minimum tax imposed on certain large corporations and the extension and expansion of clean energy tax incentives. There were no impacts related to the IRA recorded for the year ending December 31, 2022.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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