Note 14. Income Taxes

The Tax Act was enacted on December 22, 2017, which reduced the U.S. federal statutory tax rate to 21 percent effective January 1, 2018. Pursuant to the Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. We finalized the accounting for the re-measurement of U.S. deferred tax assets and deemed repatriation tax, resulting in an immaterial tax expense for fiscal 2019. We have also elected to recognize tax resulting from any Global Intangible Low Taxed Income (GILTI) inclusion as a period cost if, and when, incurred.

During fiscal 2019, our effective income tax rate increased primarily due to a tax benefit of a book loss plus permanent credits and deductions, the release of $2,741 in unrecognized tax benefits, and the reversal of a valuation allowance of $471 related to foreign net operating loss carryforwards.

The effective income tax rate for fiscal 2018 was higher than the federal statutory rate primarily due to the impacts of the Tax Act signed into law on December 22, 2017, which included a $3,534 re-measurement of deferred taxes resulting in an impact to tax expense and a $285 estimated one-time transition tax on certain undistributed earnings for our foreign subsidiaries. The Tax Act reduced the federal normal statutory rate from 35 percent to 21 percent; however, since we are a fiscal year tax filer, a blended rate of 30.4 percent was used for fiscal year 2018.

The effective income tax rate for fiscal 2017 included the impact of benefits from increased research and development tax credits, which were offset by valuation allowances recorded during the current year in certain foreign jurisdictions.

The following tables reflect the significant components of our income tax provision. The pretax income attributable to domestic and foreign operations was as follows:



	Year Ended
	April 27, 2019			April 28, 2018		April 29, 2017
Domestic	$	(8,402	)	$	9,235	$	16,010
Foreign	3,458			3,194		(422		)
Income before income taxes	$	(4,944	)	$	12,429	$	15,588

Income tax (benefit) expense consisted of the following:



	Year Ended
	April 27, 2019			April 28, 2018			April 29, 2017
Current:
Federal	$	(2,142	)	$	1,646		$	5,268
State	384			868			1,158
Foreign	1,151			1,205			863
Deferred:
Federal	(2,725		)	3,693			(1,625		)
State	(390		)	27			(397		)
Foreign	(264		)	(572		)	(21		)
	$	(3,986	)	$	6,867		$	5,246

The reconciliation of the provision for income taxes and the amount computed by applying the federal statutory rate to income before income taxes is as follows:



	Year Ended
	April 27, 2019			April 28, 2018			April 29, 2017
Computed income tax (benefit) expense at federal statutory rates	$	(1,038	)	$	3,779		$	5,456
Change in uncertain tax positions	(2,600		)	65			97
Research and development tax credit	(1,278		)	(1,598		)	(1,573		)
Other, net	587			559			378
Change in valuation allowances	(471		)	(486		)	388
GILTI	391			—			—
Stock compensation	308			336			497
Meals and entertainment	248			333			299
Dividends paid to retirement plan	(158		)	(238		)	(293		)
State taxes, net of federal benefit	25			592			539
Impact of Tax Act	—			3,819			—
Domestic production activities deduction	—			(294		)	(542		)
	$	(3,986	)	$	6,867		$	5,246

The components of the net deferred tax asset were as follows:



	April 27, 2019			April 28, 2018
Deferred tax assets:
Accrued warranty obligations	$	5,912		$	7,282
Vacation accrual	1,571			1,567
Deferred maintenance revenue	716			392
Allowance for excess and obsolete inventory	1,600			1,376
Equity compensation	486			553
Allowance for doubtful accounts	402			531
Inventory capitalization	567			481
Accrued compensation and benefits	549			651
Unrealized loss on foreign currency exchange	—			37
Net operating loss carry forwards	1,059			1,286
Research and development tax credit carry forwards	1,299			334
Other	1,647			1,042
	15,808			15,532
Valuation allowance	(893		)	(1,506		)
	14,915			14,026

Deferred tax liabilities:
Property and equipment	(3,100		)	(4,881		)
Prepaid expenses	(476		)	(486		)
Intangible assets	(623		)	(1,302		)
Unrealized gain on foreign currency exchange	(6		)	—
Other	(75		)	(41		)
	(4,280		)	(6,710		)
	$	10,635		$	7,316

The classification of net deferred tax assets in the accompanying consolidated balance sheets is:



	April 27, 2019			April 28, 2018
Non-current assets	$	11,168		$	7,930
Non-current liabilities	(533		)	(614		)
	$	10,635		$	7,316

The summary of changes in the amounts related to unrecognized uncertain tax benefits are:



	April 27, 2019			April 28, 2018
Balance at beginning of year	$	3,178		$	3,113
Gross increases related to prior period tax positions	13			82
Gross decreases related to prior period tax positions	(18		)	(30		)
Gross increases related to current period tax positions	146			152
Lapse of statute of limitations	(2,741		)	(139		)
Balance at end of year	$	578		$	3,178

All of our unrecognized tax benefits would have an impact on the effective tax rate if recognized. It is reasonably possible that the amount of unrecognized tax benefits could change due to one or more of the following events occurring in the next 12 months: expiring statutes, audit activity, tax payments, or competent authority proceedings. A statute of limitations relating to $159 of the unrecognized tax benefits (including interest) expires in the next 12 months. The benefit will be recognized if the statute lapses with no further action taken by regulators. Additionally, we recognized the release of $2,741 in unrecognized tax benefits related to the lapse of a statute of limitations in fiscal 2019.

Interest and penalties incurred associated with uncertain tax positions are included in the "Income tax expense" line item in our consolidated statement of operations. Accrued interest and penalties are included in the related tax liability line item in our consolidated balance sheets of $26 and $238 as of April 27, 2019 and April 28, 2018, respectively.

As of April 27, 2019, we had foreign net operating loss (“NOL”) carryforwards of approximately $5,722 primarily related to our operations in Belgium and Ireland, which have indefinite lives. A deferred tax asset has been recorded for all NOL carryforwards totaling approximately $1,059. However, due to uncertainty in future taxable income, a valuation allowance totaling approximately $687 has been recorded in Belgium. During fiscal 2019, the previous valuation allowance related to Ireland of $471 was reversed because it was determined that future taxable income is expected to realize the losses. If sufficient evidence of our ability to generate future taxable income in the jurisdictions in which we currently maintain a valuation allowance causes us to determine that our deferred tax assets are more likely than not realizable, we would release our valuation allowance, which would result in an income tax benefit being recorded in our consolidated statement of operations.

Additional tax information:

We are subject to U.S. federal income tax as well as income taxes of multiple state and foreign jurisdictions. Fiscal years 2016, 2017 and 2018 remain open to federal tax examinations, and fiscal years 2015, 2016, 2017 and 2018 remain open for state income tax examinations. Certain subsidiaries are also subject to income tax in several foreign jurisdictions which have open tax years varying by jurisdiction beginning in fiscal 2008. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense in our consolidated statement of operations.

As of April 27, 2019, we had no deferred tax liability recognized relating to our investment in foreign subsidiaries where the earnings have been indefinitely reinvested. The Tax Act generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and, as a result, the accumulated undistributed earnings would be subject only to other taxes, such as withholding taxes and state income taxes, on the distribution of such earnings. No additional withholding or income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time deemed repatriation tax, as it is our intention for these amounts to continue to be indefinitely reinvested in foreign operations in all of our non-U.S. jurisdictions.