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Note 8 - Income Taxes | 12 Months Ended
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Jan. 29, 2022
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
(8) | Income Taxes
The Company’s income (loss) before income taxes from domestic and foreign operations (which include the U.K., Canada, Ireland, China, and Denmark (prior to its closing in January 2021)), is as follows (in thousands):
|  | Fiscal year ended |
|  | January 29, |  |  | January 30, |
|  | 2022 |  |  | 2021 |
Domestic |  | $ | 46,473 |  |  | $ | (21,774 | )
Foreign |  |  | 4,237 |  |  |  | 1,588 |
Total income (loss) before income taxes |  | $ | 50,710 |  |  | $ | (20,186 | )
The components of the income tax expense are as follows (in thousands):
|  | Fiscal year ended |
|  | January 29, |  |  | January 30, |
|  | 2022 |  |  | 2021 |
Current: |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 8,921 |  |  | $ | (876 | )
U.S. State |  |  | 2,017 |  |  |  | 321 |
Foreign |  |  | 128 |  |  |  | (12 | )
Deferred: |  |  |  |  |  |  |  |
U.S. Federal |  |  | (4,870 | ) |  |  | 1,555 |
U.S. State |  |  | (2,140 | ) |  |  | 1,232 |
Foreign |  |  | (611 | ) |  |  | 577 |
Income tax expense |  | $ | 3,445 |  |  | $ | 2,797 |
The provision for income taxes was $3.4 million in fiscal 2021 compared to $2.8 million in fiscal 2020. The 2021 effective rate of 6.8% differed from the statutory rate of 21% primarily due to the tax benefit resulting from the reversal of the valuation allowance in North America. The 2020 effective rate of (13.9%) differed from the statutory rate of 21% primarily due to no tax benefit being recorded on pretax loss as a full valuation allowance had been recorded globally. Fiscal 2020 was also impacted by the $3.3 million valuation allowance recorded on the beginning balance of the net deferred tax assets in North America. The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets. In the fourth quarter of fiscal 2021, the Company performed an analysis of all available positive and negative evidence in this determination. As the Company was no longer in a cumulative loss position in North America for the three-year period ending January 29, 2022, the Company recorded a benefit of $7.8 million for the reversal of the beginning-of-the-year valuation allowance in North America based on the scheduled reversals of its deferred tax liabilities and projected future taxable income. In the first quarter of fiscal 2020, as the Company had anticipated incurring a cumulative book loss in North America over the three-year 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 $3.7 million valuation allowance globally due to cumulative losses and uncertainty about future earnings. Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):
|  | January 29, |  |  | January 30, |
|  | 2022 |  |  | 2021 |
Deferred tax assets: |  |  |  |  |  |  |  |
Operating lease liability |  | $ | 27,504 |  |  | $ | 33,058 |
Net operating loss carryforwards |  |  | 3,496 |  |  |  | 3,422 |
Deferred revenue |  |  | 3,228 |  |  |  | 3,903 |
Accrued compensation |  |  | 2,678 |  |  |  | 1,098 |
Depreciation |  |  | 1,636 |  |  |  | 2,412 |
Investment in affiliates |  |  | 1,583 |  |  |  | 1,215 |
Deferred compensation |  |  | 1,149 |  |  |  | 1,802 |
Accrued expenses |  |  | 820 |  |  |  | 389 |
Receivables write-offs |  |  | 704 |  |  |  | 830 |
Inventories |  |  | 634 |  |  |  | 263 |
Intangible assets |  |  | 321 |  |  |  | 388 |
Carryforward of tax credits |  |  | 227 |  |  |  | 2,251 |
Other |  |  | 920 |  |  |  | 39 |
Total gross deferred tax assets |  |  | 44,900 |  |  |  | 51,070 |
Less: Valuation allowance |  |  | (9,795 | ) |  |  | (15,401 | )
Total deferred tax assets, net of valuation allowance |  |  | 35,105 |  |  |  | 35,669 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Operating lease right-of-use assets |  |  | (21,395 | ) |  |  | (27,214 | )
Depreciation |  |  | (4,369 | ) |  |  | (4,968 | )
Deferred expense |  |  | (1,708 | ) |  |  | (1,767 | )
Deferred revenue |  |  | - |  |  |  | (1,362 | )
Other |  |  | (20 | ) |  |  | (358 | )
Total deferred tax liabilities |  |  | (27,492 | ) |  |  | (35,669 | )
Net deferred tax assets |  | $ | 7,613 |  |  | $ | - |
As of January 29, 2022, the Company had gross net operating loss (NOL) carryforwards of approximately $13.8 million, most of which relate to the U.K. where NOLs have no expiration date. 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 29, 2022, the Company had total unrecognized tax benefits of $0.3 million, of which approximately $0.3 million would favorably impact the Company’s provision for income taxes if recognized. 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. 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 29, 2022 and January 30, 2021. 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 years ended January 29, 2022 and January 30, 2021, the Company recognized a benefit 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):
| January 29, |  | January 30,
| 2022 |  | 2021
Balance at beginning of year | 170 |  | 178
Increases for prior year tax positions | 164 |  | 46
Lapse of statute of limitations | - |  | (54)
Balance at end of year | 334 |  | 170
Management estimates it is reasonably possible that the amount of unrecognized tax benefits could decrease by as much as $0.3 million in the next twelve months as a result of the resolution of audits currently in progress involving issues common to multinational corporations. The following tax years remain open in the Company’s major taxing jurisdictions as of January 29, 2022:
United States (Federal) | 2018 through 2021
United Kingdom | 2017 through 2021
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.

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