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Note 8 - Income Taxes

12 Months Ended

Jan. 30, 2021

(8)	Income Taxes

The Company’s income (loss) before income taxes from domestic and foreign operations (which include the U.K., Canada, China, Denmark and Ireland), is as follows (in thousands):

	*Fiscal year ended*
	*January 30,*			*February 1,*
	*2021*			*2020*
Domestic	$	(21,774	)	$	4,862
Foreign		1,588			(3,301	)
Total (loss) income before income taxes	$	(20,186	)	$	1,561

The components of the income tax expense are as follows (in thousands):

	*Fiscal year ended*
	*January 30,*			*February 1,*
	*2021*			*2020*

Current:
U.S. Federal	$	(876	)	$	1,068
U.S. State		321			498
Foreign		(12	)		(45	)
Deferred:
U.S. Federal		1,555			31
U.S. State		1,232			(311	)
Foreign		577			59
Income tax expense	$	2,797		$	1,300

The provision for income taxes was $2.8 million in fiscal 2020 compared to $1.3 million in fiscal 2019. The 2020 effective rate of (13.9%) differed from the statutory rate of 21% primarily due to no tax benefit being recorded on the current year pretax loss as a full valuation allowance has been recorded globally. The 2019 effective rate of 83.0% differed from the statutory rate of 21% primarily due to the valuation allowance recorded in certain foreign jurisdictions and the $0.2 million tax impact of equity awards.

As the Company has incurred a cumulative book loss in North America and on a consolidated basis over the three-year cumulative period ended January 30, 2021, management evaluated the realizability of the Company’s North America deferred tax assets, including an analysis of all available positive and negative evidence. The three-year cumulative loss is a significant piece of negative evidence. ASC 740 requires objective historical evidence be given more weight than subjective evidence, such as forecasts of future income. Accordingly, in the first quarter of fiscal 2020, the Company recorded a $3.3 million valuation allowance on its North America deferred tax assets. During fiscal 2020, the Company recorded an additional $5.3 million valuation allowance globally primarily due to cumulative losses and uncertainty about future earnings forecasts. In fiscal 2019, the Company recorded an additional $0.6 million valuation allowance in certain foreign jurisdictions due to cumulative losses and uncertainty about future earnings forecast.

Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):

	*January 30,*			*February 1,*
	*2021*			*2020*

Deferred tax assets:
Operating lease liability	$	33,058		$	36,301
Deferred revenue		3,903			2,693
Net operating loss carryforwards		3,422			3,049
Carryforward of tax credits		2,251			87
Depreciation		1,880			1,663
Deferred compensation		1,802			1,893
Investment in affiliates		1,215			1,202
Accrued compensation		1,098			1,340
Receivables write-offs		830			664
Intangible assets		388			588
Inventories		263			593
Other		960			853
Total gross deferred tax assets		51,070			50,926
Less: Valuation allowance		(15,401	)		(6,774	)
Total deferred tax assets, net of valuation allowance		35,669			44,152

Deferred tax liabilities:
Operating lease right-of-use assets		(27,214	)		(31,062	)
Depreciation		(4,968	)		(5,330	)
Deferred expense		(1,767	)		(1,257	)
Deferred revenue		(1,362	)		(2,726	)
Other		(358	)		(366	)
Total deferred tax liabilities		(35,669	)		(40,741	)
Net deferred tax assets	$	-		$	3,411

As of January 30, 2021, the Company had gross net operating loss (NOL) carryforwards of approximately $15.5 million, most of which relate to the U.K. where NOLs have no expiration date. The Company also had tax credit carryforwards of $2.3 million, most of which related to the US, with credit carryforward periods of 10-20 years and with expirations beginning in fiscal 2021.

The Company continues to assert its investments in foreign subsidiaries are permanent in duration and it is not practical to estimate the income tax liability on the outside basis differences.

As of January 30, 2021, the Company had total unrecognized tax benefits of $0.2 million, of which approximately $0.2 million would favorably impact the Company’s provision for income taxes if recognized. As of February 1, 2020, the Company had total unrecognized tax benefits of $0.2 million, of which approximately $0.2 million would favorably impact the Company’s provision for income taxes if recognized. The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly. Accrued interest and penalties included within other liabilities in the consolidated balance sheets were less than $0.1 million for both years ended as of January 30, 2021 and February 1, 2020. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes within the consolidated statement of operations. For the year ended January 30, 2021, the Company recognized a benefit of less than $0.1 million for interest and penalties. For the year ended February 1, 2020, the Company recognized an expense of less than $0.1 million for interest and penalties.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance as of February 2, 2019	$	418
Increases for prior year tax positions		67
Decreases for prior year tax positions		(288	)
Lapse of statute of limitations		(19	)
Balance as of February 1, 2020		178
Increases for prior year tax positions		46
Decreases for prior year tax positions		-
Lapse of statute of limitations		(54	)
Balance as of January 30, 2021	$	170

Management estimates it is reasonably possible that the amount of unrecognized tax benefits could decrease by as much as $0.2 million in the next twelve months as a result of the resolution of audits currently in progress involving issues common to multinational corporations and the lapsing of the statute of limitations.

The following tax years remain open in the Company’s major taxing jurisdictions as of January 30, 2021:

United States (Federal)	2017 through 2020
United Kingdom	2017 through 2020

The Company also files tax returns in various other international jurisdictions and numerous states for which various tax years are subject to examination and currently involved in audits.

- 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.

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