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Note 12 - Income Taxes
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

12. Income Taxes

 

The Company's provision (benefit) for income taxes comprises the following:

 

  

For the year ended December 31,

 
  

2021

  

2020

  

2019

 

Current:

            

Federal

 $19,211,782  $5,111,667  $(663,114)

State and local

  513,753   447,965   143,455 

Foreign

  13,994   —   — 

Total current provision (benefit)

  19,739,529   5,559,632   (519,659)

Deferred:

            

Federal

  89,947   11,375,962   (2,092,585)

State and local

  31,499   230,987   (325,032)

Foreign

  —   —   — 

Total deferred provision (benefit)

  121,446   11,606,949   (2,417,617)

Total provision (benefit)

 $19,860,975  $17,166,581  $(2,937,276)

 

The Company’s deferred tax assets and liabilities comprise the following:

 

  

As of December 31,

 
  

2021

  

2020(1)

 

Deferred income tax assets:

        

Net operating losses

 $1,293,912  $1,293,842 

Inventory

  184,046   224,656 

Reserves and accruals

  741,684   725,875 

Amortization of intangible assets

  50,107   80,930 

Share-based compensation

  280,396   398,165 

Deferred revenue

  702,617   709,480 

Lease liability

  570,446   520,830 

Other

  267,050   191,174 

Deferred income tax assets

  4,090,258   4,144,952 

Less: valuation allowance

  (1,022,191)  (1,022,135)

Deferred income tax assets, net of valuation allowance

 $3,068,067  $3,122,817 

Deferred income tax liabilities:

        

Amortization of goodwill

  (197,245)  (199,172)

Property, plant and equipment

  (156,289)  (81,065)

Other

  (291,926)  (298,527)

Deferred income tax asset, net

 $2,422,607  $2,544,053 

 

(1) Certain prior year amounts were reclassed to conform with current year presentation.

 

The recognition of a valuation allowance for deferred taxes requires management to make estimates and judgments about the Company’s future profitability which is inherently uncertain. The Company assesses all available positive and negative evidence to determine if its existing deferred tax assets are realizable on a more-likely-than-not basis. In making such assessment, the Company considered the reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operating results. The ultimate realization of a deferred tax asset is ultimately dependent on the Company's generation of sufficient taxable income within the available net operating loss carryback and/or carryforward periods to utilize the deductible temporary differences. As of December 31, 2021, the Company has a valuation allowance on certain state and local net operating losses which the Company determined were not realizable on a more-likely-than-not basis. The Company's valuation allowance did not change materially from prior years. 

 

The benefit for income taxes differs from the expected amount calculated by applying the Company's statutory rate to the income or loss before benefit for income taxes as follows:

 

  

As of December 31,

 
  

2021

  

2020

  

2019

 

Statutory federal income tax rate

  21.0%  21.0%  21.0%

State and local taxes

  0.5%  0.7%  1.3%

Change in fair value of common stock warrant

  —   1.0%  10.5%

Section 162(m) limitation

  0.5%  0.5%  (6.0)%

Other

  0.2%  0.2%  2.1%

Effective tax rate

  22.2%  23.4%  28.9%

 

For the year ended December 31, 2021, the Company’s effective tax rate differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m) and state and local taxes. For the year ended December 31, 2020, the Company's effective tax rate differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m), a non-taxable adjustment for the fair market value of the Warrant, and state and local taxes.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:

 

  

For the year ended December 31,

 
  

2021

  

2020

  

2019

 

Balance at beginning of year

 $5,591,587  $5,649,188  $5,738,964 

Tax positions related to the current and prior years:

            

Additions

  11,000   —   — 

Reductions

  —   (57,601)  (89,776)

Settlements

  —   —   — 

Lapses in applicable statutes of limitation

  —   —   — 

Balance at the end of the year

 $5,602,587  $5,591,587  $5,649,188 

 

Included in the balance of unrecognized tax benefits as of December 31, 2021, are potential benefits of $5.6 million that, if recognized, would affect the effective tax rate. For the years ended  December 31, 2021 and December 31, 2020, interest and penalties on unrecognized tax benefits were $95,000 and $65,000, respectively. There are no uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized benefits will significantly increase or decrease within twelve months from December 31, 2021.

 

The Company files federal income tax returns and income tax returns in various state and local tax jurisdictions. The federal tax years open to examination are 2018 to 2021. The Company's state and local tax years that are open to tax examination are generally 2017 to 2021.