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Income Tax | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income from operations before income taxes consisted of the following:
| (Dollars in thousands)
| Year Ended December 31,
| 2019 |  | 2018
United States | $ | 5,418 |  |  | $ | 6,839 |
Canada | 4,256 |  |  | 24 |
| $ | 9,674 |  |  | $ | 6,863 |
Provision (benefit) for income taxes from operations for the years ended December 31, consisted of the following:
| (Dollars in thousands)
| Year Ended December 31,
| 2019 |  | 2018
Current income tax expense: |  |  |
U.S. state | $ | 136 |  |  | $ | 165 |
Canada | 291 |  |  | 257 |
Total | $ | 427 |  |  | $ | 422 |
Deferred income tax expense (benefit): |  |  |
U.S. federal | $ | 2,012 |  |  | $ | 721 |
U.S. state | 303 |  |  | (464 | )
Canada | (289 | ) |  | (30 | )
Total | $ | 2,026 |  |  | $ | 227 |
Total income tax expense (benefit): |  |  |
U.S. federal | $ | 2,012 |  |  | $ | 721 |
U.S. state | 439 |  |  | (299 | )
Canada | 2 |  |  | 227 |
Total | $ | 2,453 |  |  | $ | 649 |
The reconciliation between the effective income tax rates and the statutory federal rates for operations are as follows:
| Year Ended December 31,
| 2019 |  | 2018
Statutory Federal rate | 21.0 | % |  | 21.0 | %
Increase (decrease) resulting from: |  |  |
Change in valuation allowance - current period activity | (4.5 | ) |  | 3.7 |
Change in valuation allowance - reversal | (13.6 | ) |  | — |
Capital loss | 13.6 |  |  | — |
Stock compensation | (11.5 | ) |  | (4.5 | )
Compensation deduction limitation | 10.1 |  |  | — |
State and local taxes, net | 4.5 |  |  | 4.7 |
Foreign income inclusion | 3.1 |  |  | (13.3 | )
Meals & entertainment | 1.8 |  |  | 2.4 |
Change in uncertain tax positions | (1.0 | ) |  | (1.4 | )
Provision to return differences | 0.2 |  |  | (9.3 | )
Foreign currency loss | — |  |  | 2.5 |
Alternative minimum tax | — |  |  | 1.4 |
Other items, net | 1.7 |  |  | 2.3 |
Provision for income taxes | 25.4 | % |  | 9.5 | %
At December 31, 2019, the Company had $13.1 million of U.S. federal net operating loss carryforwards which are subject to expiration beginning in 2030 and $16.8 million of various state net operating loss carryforwards which expire at varying dates through 2034. Primarily due to the cumulative losses that were incurred over several years, management determined in 2012 that it was more likely than not that the company would not be able to utilize its deferred tax assets to offset future taxable income. Valuation allowances ("VA’s") were recorded against virtually all the gross deferred tax assets at that time. At each reporting date since 2012, Lawson management has considered new evidence, both positive and negative, that could impact management’s view with regard to the realization of its deferred tax assets and the reversal of the corresponding valuation allowances. If the company was able to demonstrate that it can consistently generate income it may lead to a determination that there is sufficient positive evidence to conclude that it is more likely than not that the company will be able to utilize its deferred tax assets to offset future taxable income. In 2017 we had continued to generate pre-tax profits and had utilized some of our net operating loss carryforwards over the previous two years and were in a three year cumulative income position in the U.S. Based on available evidence, including the utilization of $13.0 million of net operating loss carryforwards in 2017, we reached a point of increased confidence in our ability to sustain profit levels and we believed it was more likely than not that we would be able to utilize a substantial amount of our deferred tax assets to offset future taxable income. Therefore, a large portion of our U.S. valuation allowances were released in 2017. Certain valuation allowances mostly pertaining to the deferred tax assets related to our foreign operations will remain. The Company will continue to monitor all positive and negative evidence related to the remaining valuation of deferred tax assets on a quarterly basis. The Tax Cuts and Jobs Act was enacted into law on December 22, 2017. Subsequent to this, the Securities and Exchange Commission ("SEC") issued SAB 118 (Income Tax Accounting Implications of the Tax Cuts and Jobs Act) which allows registrants to record provisional amounts during a measurement period. The SAB allows a company to recognize provisional amounts when it does not have the necessary information prepared in reasonable detail to calculate the effect of the change in tax law. Per the SAB, a company should report provisional amounts when the accounting is not complete, but for which a reasonable estimate can be determined. Lawson included in its 2017 taxable income calculation a provisional amount of approximately $8.4 million representing previously untaxed foreign earnings and profits. The Company did not accrue any federal income tax on this amount as the company was able to utilize federal net operating losses to offset the income. The Company recently finalized the foreign earnings and profit calculation in conjunction with the finalization of the 2017 federal income tax return when all required necessary information was more readily available. A lower final foreign earnings and profits inclusion of $3.9 million resulted in a tax benefit which has a beneficial impact on the effective tax rate for the year ending December 31, 2018. As a result of acquisitions completed in recent years, the Company recorded $20.9 million of tax deductible goodwill that may result in a tax benefit in future periods. Deferred income tax assets and liabilities contain the following temporary differences:
| (Dollars in thousands)
| December 31,
| 2019 |  | 2018
Deferred tax assets: |  |  |
Net operating loss carryforward | $ | 7,786 |  |  | $ | 9,878 |
Compensation and benefits | 9,947 |  |  | 9,598 |
Inventory reserve | 1,589 |  |  | 1,769 |
Accounts receivable reserve | 152 |  |  | 142 |
Lease assets | 3,326 |  |  | — |
Capital loss carryforward | — |  |  | 1,317 |
Other | 146 |  |  | 457 |
Total deferred tax assets | 22,946 |  |  | 23,161 |
Deferred tax liabilities: |  |  |
Intangible assets | 2,360 |  |  | 2,478 |
Lease liabilities | 2,850 |  |  | — |
Property, plant and equipment | 353 |  |  | (20 | )
Other | 625 |  |  | 303 |
Total deferred liabilities | 6,188 |  |  | 2,761 |
Net deferred tax assets before valuation allowance | 16,758 |  |  | 20,400 |
Valuation allowance | (1,235 | ) |  | (2,569 | )
Net deferred tax assets | $ | 15,523 |  |  | $ | 17,831 |
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (Dollars in thousands)
| December 31,
| 2019 |  | 2018
Balance at beginning of year | $ | 3,612 |  |  | $ | 4,255 |
Additions for tax positions of current year | 13 |  |  | 43 |
Additions for tax positions of prior years | 121 |  |  | 85 |
Reductions for tax positions of prior year | (29 | ) |  | (771 | )
Lapse of statute of limitations | (475 | ) |  | — |
Balance at end of year | $ | 3,242 |  |  | $ | 3,612 |
The recognition of the unrecognized tax benefits would have a favorable effect on the effective tax rate. Due to the uncertainty of both timing and resolution of income tax examinations, the Company is unable to determine whether any amounts included in the December 31, 2019 balance of unrecognized tax benefits represent tax positions that could significantly change during the next twelve months. The unrecognized tax benefits are recorded as a component of Other liabilities in the Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. As of December 31, 2019, the Company was subject to U.S. federal income tax examinations for the years 2016 through 2018 and income tax examinations from various other jurisdictions for the years 2012 through 2018.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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