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Note 14 - Income Taxes
 12 Months Ended
Mar. 31, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 14. Income Taxes

 

Earnings before income taxes are as follows:

 

  

Year Ended March 31,

 
  

2021

  

2020

  

2019

 

Domestic

 $6,297  $16,059  $12,133 

Foreign

  (3,994)  (12,197)  (3,510)

Total earnings before income taxes

 $2,303  $3,862  $8,623 

 

The components of our provision for income taxes are as follows:

 

  

Year Ended March 31,

 
  

2021

  

2020

  

2019

 

Current tax provision

            

U.S. Federal

 $1,500  $2,348  $1,831 

U.S. State

  628   814   449 

Foreign

  404   993   1,166 

Total current tax expense

  2,532   4,155   3,446 

Deferred tax provision:

            

U.S. Federal

  (2,410)  60   (741)

U.S. State

  (619)  599   (106)

Foreign

  (474)  (2,730)  (1,460)

Total deferred tax benefit

  (3,503)  (2,071)  (2,307)

Total income tax (benefit) expense

 $(971) $2,084  $1,139 

 

The components of net deferred tax assets and liabilities are as follows:

 

  

March 31, 2021

  

March 31, 2020

 

Deferred tax assets:

        

Net operating loss

 $8,990   8,874 

Stock compensation deductible differences

  2,099   1,265 

Inventories

  838   504 

Allowances and reserves

  1,471   105 

Accrued employee-related expenses

  209  $208 

Credits

  169   47 

Other

  25   458 

Total deferred tax assets

  13,801   11,461 

Deferred tax liabilities:

        

Goodwill and intangible assets

  (23,029)  (24,825)

Debt

  (4,723)  (5,982)

Property, plant and equipment

  (1,275)  (1,286)

Other

  (29)  (65)

Total deferred tax liabilities

  (29,056)  (32,158)

Valuation allowance

  (404)  (391)

Net deferred tax liability

 $(15,659) $(21,088)

 

A reconciliation of our income tax provision and the amounts computed by applying statutory rates to income before income taxes is as follows:

 

  

Year Ended March 31,

 
  

2021

  

2020

  

2019

 

Federal income taxes at statutory rates

 $483  $811  $1,811 

State income taxes, net of federal benefit

  (221)  1,122   208 

Tax benefit of stock option exercises

  (1,816)  (1,576)  (2,034)
Foreign-derived intangible income deduction  (999)  -   - 

Research and development credit

  (165)  (191)  (158)

Limitation for 162(m)

  1,113   1,112   766 
Foreign rate differential  810   657   - 

Other

  (176)  149   546 

Total income tax (benefit) expense

 $(971) $2,084  $1,139 

 

We or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. Our federal tax returns for all years after 2017, state tax returns after 2016 and foreign tax returns after 2016 are subject to future examination by tax authorities for all our tax jurisdictions. Although the outcome of tax audits, if any, is always uncertain, we believe that we have adequately accrued for all amounts of tax, including interest and penalties and any adjustments that may result. The tax year ended  December 31, 2018 for Gyros US, Inc., and its subsidiary (together "Gyros U.S."), which we acquired as part of the GPT Acquisition, is under examination by the IRS. Additionally, the tax year ended March 31, 2019 for Mesa Laboratories, Inc. is under review by the IRS. We expect the examinations for these tax years to be completed during the year ending March 31, 2022.

 

We recognize interest and penalties related to unrecognized tax benefits in other expense and general and administrative expense, respectively. Accrued interest and penalties related to unrecognized tax benefits were $0, $19 and $40 as of March 31, 2021, 2020 and 2019, respectively.

 

A reconciliation of the changes in the balance of unrecognized tax benefit amounts is as follows:

 

  

Year Ended March 31,

 
  

2021

  

2020

  

2019

 

Beginning balance

 $653  $1,361  $827 

Decreases related to prior period tax positions

  (629)  (1,027)  - 

Increases related to current period tax positions

  40   319   534 

Ending balance

 $64  $653  $1,361 

 

During the year ended March 31, 2021, we recorded an income tax benefit of approximately $630, including interest, related to our foreign-derived intangible income deduction recognition based on updated Treasury Regulations, and application of those regulations to our operations, which reduced the effective tax rate by 6.0%.  The remaining amount of tax benefits that, if recognized, would affect the effective tax rate was $64 as of March 31, 2021, excluding interest and penalties.

We expect that the remaining amount of unrecognized tax benefits will change in the next 12 months; however, we do not expect the change to have a significant impact on our consolidated statements of operations or consolidated balance sheets. At this time, we expect resolution of the uncertain tax position within 12 months.

 

As of March 31, 2021, and March 31, 2020, respectively, undistributed earnings of our foreign subsidiaries amounted to $9,951 and $12,900, respectively. Those earnings are considered indefinitely reinvested and, accordingly, no U.S. federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits would be available to reduce a portion of the U.S. tax liability. Furthermore, as a result of the Tax Cuts and Job Act, a significant portion of the distribution may not be subject to current U.S. income taxes, resulting in no foreign tax credits. 

 

As of March 31, 2021, we had $27,547 of gross net operating losses for foreign tax purposes. The foreign net operating losses do not expire. Furthermore, Gyros U.S. had gross net operating loses of $11,936 and $11,449, for federal and state tax purposes, respectively, of which the federal net operating losses do not expire, and the state net operating losses begin to expire in the 2022 tax year. In addition, we had $16 of foreign tax credit carryovers which will expire in the tax year 2029. Gyros U.S. also had $153 of Research and Development credit carryforward which will begin to expire in the 2030 tax year.