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Income Taxes

12 Months Ended

Oct. 31, 2019

Income Taxes

9. Income Taxes

On December 22, 2017, the President of the United States signed and enacted comprehensive tax legislation into law H.R. 1, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). In the prior fiscal period, the Company considered a number of changes from the Tax Act, most notably reducing the U.S. federal corporate tax rate, a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and accelerated depreciation for certain assets acquired and placed in service after September 27, 2017. Effective January 1, 2018, the Tax Act reduced the U.S. federal corporate tax rate from 35.0% to 21.0%. Because the Company has an October 31 fiscal year-end, the lower corporate federal income tax rate was phased in, resulting in a blended U.S. federal statutory tax rate of 23.3% for our fiscal period 2018, and 21% for the fiscal period 2019.

Effective beginning in fiscal period 2019, the Company is subject to additional requirements of the Tax Act including the repeal of the deduction for domestic production activities, a tax on global intangible low-taxed income (GILTI), a tax determined by base erosion tax benefits (BEAT) from certain payments between a U.S. corporation and foreign subsidiaries, a limitation of certain executive compensation, a deduction for foreign derived intangible income (FDII) and interest expense limitations. The Company has considered these new requirements, the most significant of which being the limitation of executive compensation of $0.2 million and the repeal of the domestic production deduction. The domestic production deduction generated a tax benefit of $0.8 million in fiscal period 2018.

The Tax Act created new rules that allow the Company to make an accounting policy election to either treat taxes due on future GILTI inclusions in taxable income as either a current period expense or reflect such inclusions related to temporary basis differences in the Company’s measurement of deferred taxes. The Company is not expecting to be subject to GILTI and therefore has not yet made a policy election regarding the tax accounting treatment of the GILTI tax. The Company also continues to evaluate the impact of the GILTI provisions under the U.S. tax law changes which are complex and subject to continuing regulatory interpretation by the IRS. The impact of GILTI was not material for the fiscal period 2019.

On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) allowing taxpayers to record a reasonable estimate of the impact of the U.S. legislation when it does not have the necessary information available, prepared or analyzed (including

computations) in reasonable detail to complete its accounting for the change in tax law. As of fiscal period 2019, the company has completed its accounting for the act.

Prior to the enactment of the Tax Act, the Company regularly determined certain foreign earnings to be indefinitely reinvested outside the United States. Our intent is to permanently reinvest these funds outside of the United States and our current plans do not demonstrate a need to repatriate the cash to fund our U.S. operations. However, if these funds were repatriated, we would be required to accrue and pay applicable United States taxes (if any) and withholding taxes payable to foreign tax authorities.

The income tax provision consists of the following for the years ended October 31, (in thousands):


		2019			2018			2017

Current:
Federal		$	9,146		$	7,115		$	14,875
State			2,516			1,582			2,561
Foreign			290			(844)			290
Total current			11,952			7,853			17,726

Deferred:
Federal			516			3,328			2,567
State			209			690			335
Foreign			205			848			(178)
Total deferred			930			4,866			2,724
Total income tax provision		$	12,882		$	12,719		$	20,450

At October 31, 2019 and 2018, gross deferred tax assets totaled approximately $18.5 million and $19.1 million, while gross deferred tax liabilities totaled approximately $15.0. million and $14.8 million. Deferred income taxes reflect the net of temporary differences between the carrying amount of assets and liabilities for financial reporting and income tax purposes.

Significant components of our deferred taxes assets (liabilities) as of October 31, are as follows (in thousands):


		2019			2018

Property, plant, and equipment			(10,407)			(7,715)
Intangible assets			11,805			13,886
Unrealized gain, Limoneira investment			(2,352)			(4,777)
Investment in FreshRealm			(1,513)			(1,283)
Stock-based compensation			857			899
State taxes			(437)			(690)
Credits and incentives			1,109			1,641
Allowance for accounts receivable			834			825
Inventories			445			353
Accrued liabilities			3,423			1,533
Other			(317)			(295)
Long-term deferred income taxes		$	3,447		$	4,377

A reconciliation of the significant differences between the federal statutory income tax rate and the effective income tax rate on pretax income for the years ended October 31, is as follows:


		2019		2018		2017

Federal statutory tax rate		21.0	%	23.3	%	35.0	%
State taxes, net of federal effects		3.7		3.6		2.9
Foreign income taxes greater than U.S.		0.4		0.7		0.1
Revaluation of deferred taxes		—		4.5		-
Section 199 deduction		—		(1.9)		(2.2)
Provision to return		0.7		(1.2)		-
Transition Tax		—		0.6		-
State rate change		(0.2)		0.2		0.3
Other		0.4		(1.4)		(0.7)
		26.0	%	28.4	%	35.4	%

For fiscal years 2019, 2018 and 2017, income before income taxes related to domestic operations was approximately $47.9 million, $45.8 million, and $57.5. million. For fiscal years 2019, 2018 and 2017, income (loss) before income taxes related to foreign operations was approximately $1.6 million, $(1.1) million and $0.2 million.

As of October 31, 2019 and 2018, we had liability of $0.1 million and $0.1 million for unrecognized tax benefits related to various foreign income tax matters.

We are subject to U.S. federal income tax as well as income of multiple state tax and foreign tax jurisdictions. We are no longer subject to U.S. income tax examinations for the fiscal years prior to October 31, 2016, and are no longer subject to state income tax examinations for fiscal years prior to October 31, 2015.