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Note 12 - Income Taxes
 12 Months Ended
May 01, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 12. Income Taxes

 

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

 
  May 1, 2021  May 2, 2020  April 27, 2019 

Domestic

 $10,413  $(4,187) $(8,402)

Foreign

  3,647   4,178   3,458 

Income (loss) before income taxes

 $14,060  $(9) $(4,944)

 

Income tax expense (benefit) consisted of the following:

 

  

Year Ended

 
  May 1, 2021  May 2, 2020  April 27, 2019 

Current:

            

Federal

 $507  $625  $(2,142)

State

  422   297   384 

Foreign

  891   761   1,151 

Deferred:

            

Federal

  1,216   (2,028)  (2,725)

State

  59   (321)  (390)

Foreign

  39   166   (264)
  $3,134  $(500) $(3,986)

 

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

 

  

Year Ended

 
  May 1, 2021  May 2, 2020  April 27, 2019 

Computed income tax expense (benefit) at federal statutory rates

 $2,953  $(2) $(1,038)

Change in uncertain tax positions

  (34)  4   (2,600)

Research and development tax credit

  (1,047)  (1,621)  (1,278)

Other, net

  403   (241)  587 

Change in valuation allowances

  402   482   (471)

GILTI

  (156)  149   391 

Base Erosion Anti-Abuse Tax (BEAT)

  (285)  301   — 

Stock compensation

  355   318   308 

Meals and entertainment

  49   305   248 

Dividends paid to retirement plan

  —   (111)  (158)

State taxes, net of federal benefit

  494   (84)  25 
  $3,134  $(500) $(3,986)

 

The effective income tax rate for fiscal 2021 was impacted due to tax benefits from permanent tax credits and prior year provision to return adjustments offset by valuation allowances as well as other various permanent tax adjustments and state taxes.

 

During fiscal 2020, our effective income tax rate was impacted due to the tax benefit of permanent tax credits reduced by a valuation allowance placed on equity investments in proportion to a small pre-tax book loss which results in an abnormal looking tax rate.

 

During fiscal 2019, our effective income tax rate was impacted due to a tax benefit of a book loss plus permanent credits and deductions, the release of unrecognized tax benefits, and the reversal of a valuation allowance related to foreign net operating loss carryforwards.

 

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

 

  

May 1, 2021

  

May 2, 2020

 

Deferred tax assets:

        

Accrued warranty obligations

 $6,293  $6,202 

Vacation accrual

  1,222   1,753 

Deferred maintenance revenue

  398   987 

Allowance for excess and obsolete inventory

  1,776   1,318 

Legal reserve

  —   503 

Equity compensation

  324   396 

Allowance for doubtful accounts

  829   546 

Inventory capitalization

  583   822 

Accrued compensation and benefits

  1,707   539 
Unrealized loss on foreign currency exchange  85   — 

Net operating loss carry forwards

  856   919 

Research and development tax credit carry forwards

  516   1,975 

Lease accounting - lease liability

  1,572   2,099 

Other

  1,513   1,035 

Total deferred tax assets

  17,674   19,094 

Valuation allowance

  (1,732)  (1,189)

Net deferred tax assets

  15,942   17,905 
         

Deferred tax liabilities:

        

Property and equipment

  (2,373)  (2,141)

Lease accounting - right of use asset

  (1,580)  (2,103)

Prepaid expenses

  (337)  (440)

Intangible assets

  (69)  (317)

Unrealized gain on foreign currency exchange

  —   (17)

Other

  (49)  (68)

Total deferred tax liabilities

  (4,408)  (5,086)

Net deferred tax asset

 $11,534  $12,819 

 

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

 

  May 1, 2021  May 2, 2020 

Non-current assets

 $11,944  $13,271 

Non-current liabilities

  (410)  (452)
  $11,534  $12,819 

 

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

 

  May 1, 2021  May 2, 2020 

Balance at beginning of year

 $582  $578 

Gross increases related to prior period tax positions

  21   17 

Gross decreases related to prior period tax positions

  (1)  (2)

Gross increases related to current period tax positions

  84   148 

Lapse of statute of limitations

  (138)  (159)

Balance at end of year

 $548  $582 

 

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 $150 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 $138 in unrecognized tax benefits related to the lapse of a statute of limitations in fiscal 2021.

 

Interest and penalties incurred associated with uncertain tax positions are included in the "Income tax expense" line item in our consolidated statements of operations. Accrued interest and penalties are included in the related tax liability line item in our consolidated balance sheets of $38 and $30 as of May 1, 2021 and May 2, 2020, respectively.

 

As of May 1, 2021, we had foreign net operating loss (“NOL”) carryforwards of approximately $4,457 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 $856. However, due to uncertainty in future taxable income, a valuation allowance totaling approximately $595 was been recorded. 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 statements 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 2018, 2019 and 2020 remain open to federal tax examinations, and fiscal years 2017, 2018, 2019 and 2020 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 2010. 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 May 1, 2021, we had no deferred tax liability recognized relating to our investment in foreign subsidiaries where the earnings have been indefinitely reinvested. The Tax Act of 2017 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.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the COVID-19 global pandemic. The CARES Act includes provisions such as: a deferral of the employer portion of certain payroll taxes, refundable payroll tax credits, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, technical corrections to tax depreciation methods for qualified improvement property, and permitting NOL incurred in tax years 2018, 2019, and 2020 (our fiscal years 2019, 2020, and 2021) to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Subsequently to the CARES Act, the Consolidated Appropriations Act (“CAA”) of 2021 was signed into law on December 27, 2020 expanding and extending rules pertaining to payroll tax credits outlined in the CARES Act. Additionally, the American Rescue Plan Act of 2021 (“ARPA”) signed into law on March 11, 2021, further extended the payroll tax credits with slight modifications. We continue to evaluate the specific rules, guidance, and procedures allowed by the provisions of the CARES Act, CAA and ARPA. Some of these provisions do not apply to our income tax results; however, we are currently participating in the payment deferral of the employer portion of certain payroll taxes.