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Note 12 - Income Taxes
 12 Months Ended
Mar. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 12. Income Taxes

 

Provision for Income Taxes

 

Earnings before income taxes were as follows:

 

  

Year Ended March 31,

 
  

2023

  

2022

  

2021

 

Domestic

 $1,887  $4,579  $6,297 

Foreign

  (2,276)  (1,005)  (3,994)

Total (loss) earnings before income taxes

 $(389) $3,574  $2,303 

 

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

 

  

Year Ended March 31,

 
  

2023

  

2022

  

2021

 

Current tax provision:

            

U.S. Federal

 $593  $(83) $1,500 

U.S. State

  538   286   628 

Foreign

  1,070   1,372   404 

Total current tax expense

  2,201   1,575   2,532 

Deferred tax provision:

            

U.S. Federal

  (1,432)  1,707   (2,410)

U.S. State

  (210)  337   (619)

Foreign

  (1,878)  (1,916)  (474)

Total deferred tax (benefit) expense

  (3,520)  128   (3,503)

Total income tax (benefit) expense

 $(1,319) $1,703  $(971)

 

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

 

  

Year Ended March 31,

 
  

2023

  

2022

  

2021

 

Federal income taxes at statutory rates

 $(82) $751  $483 

State income taxes, net of federal benefit

  (1,075)  628   (221)

Tax benefit of stock option exercises

  (1,169)  (4,055)  (1,816)

Research and development credit

  (1,010)  (495)  (165)

Limitation for 162(m)

  2,675   4,039   1,113 

Return to provision adjustment

  (125)  (68)  (172)

Subpart F, GILTI, & FDII

  (127)  6   (999)

Foreign rate differential

  (439)  152   810 

Permanent Difference

  33   64   15 

Interest reserve adjustment

  -   668   - 

Other

  -   13   (19)

Total income tax (benefit) expense

 $(1,319) $1,703  $(971)

 

The Company has elected to recognize U.S. taxes on global intangible low-taxed income ("GILTI") as a period expense in the year the tax is incurred. 

 

Deferred Tax Assets and Liabilities

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets (liabilities) were as follows:

 

  

March 31, 2023

  

March 31, 2022

 

Deferred tax assets:

        

Net operating loss

 $6,945  $11,274 

Credits

  4,769   5,321 

Allowances and reserves

  2,376   1,977 

Capitalized research expenditures(1)

  3,124   - 

Stock compensation deductible differences

  1,384   2,137 

Inventories

  1,348   1,316 

Other

  188   394 

Total deferred tax assets

  20,134   22,419 

Deferred tax liabilities:

        

Goodwill and intangible assets

  (49,781)  (56,145)

Property, plant and equipment

  (2,502)  (3,284)

Other

  (221)  (188)

Total deferred tax liabilities

  (52,504)  (59,617)

Valuation allowance

  (582)  (708)

Net deferred tax (liability)

 $(32,952) $(37,906)

 

(1) Under the Tax Cut and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S tax purposes effective January 1, 2022. The mandatory capitalization requirement increases our deferred tax assets and cash tax liabilities.

 

Valuation Allowance

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. In evaluating the need for a valuation allowance, management takes into account various factors, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. Based on this evaluation, the Company has concluded that its U.S. operations and the majority of foreign operations have a sufficient source of income to realize our existing deferred tax assets as of March 31, 2023. The Company’s valuation allowance movement during fiscal year 2023 is mainly related to a change of judgement regarding the realizability of deferred tax assets in Canada and Germany.

 

The following table summarizes the changes in our valuation allowance for deferred tax assets: 

 

  

Year Ended March 31,

 
  

2023

  

2022

  

2021

 

Beginning balance

 $708  $404  $391 

Additions charged to income tax expense and other accounts

  567   304   13 

Deductions from reserves

  (693)  -   - 

Ending balance

 $582  $708  $404 

 

Net Operating Loss Credit and Carryforwards

 

As of March 31, 2023, the Company had U.S. and Foreign net operating loss (“NOL”) carryforwards consisting of the following: 

 

  

March 31, 2023

  

Expiration Date

 

Pre-2018 federal NOL carryforwards

 $-   N/A 

Post-2018 federal NOL carryforwards

  2,819  

Indefinite

 

State NOL carryforwards

  7,210  

March 31, 2037

 

Foreign NOL carryforwards

  22,262  

Indefinite

 

 

As of March 31, 2023, the Company had U.S. tax credit carryforwards consisting of the following:

 

  

March 31, 2023

  

Expiration Date

 

Federal research tax credit carryforwards

 $2,428  

March 31, 2038

 

State research tax credits carryforwards

  2,944  

March 31, 2034

 

Federal foreign tax credit carryforwards

  15  March 31, 2036 

 

As a result of the Agena acquisition in fiscal year 2022, an ownership change as defined in Section 382 of the Internal Revenue Code occurred resulting in limitations on the Company’s use of acquired federal and state net operating losses, as well as certain tax credits. As of March 31, 2023, $1,513 of the Company’s federal tax loss carryforwards, and $1,360 of the Company’s federal research and development credit carryforwards are subject to Section 382 and other restrictions.

 

Undistributed earnings in foreign subsidiaries

 

For the year ended March 31, 2023, provisions have not been made for income taxes on $65,028 of undistributed earnings that were deemed permanently reinvested in foreign subsidiaries at March 31, 2023. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the Company no longer plans to permanently reinvest these undistributed earnings.

 

Uncertain Tax Positions

 

Uncertain tax positions, if ever recognized in the financial statements, would be recorded in the consolidated statements of operations as part of the income tax provision. A reconciliation of the beginning and ending amount of unrecognized tax benefits, exclusive of interest and penalties, included in the deferred tax liability on the accompanying Consolidated Balance Sheets of the Company is as follows:

 

  

Year Ended March 31,

 
  

2023

  

2022

  

2021

 

Beginning balance

 $1,329  $64  $653 

(Decrease) increase related to prior period tax positions

  (1,272)  1,179   (629)

Increases related to current period tax positions

  35   86   40 

Ending balance

 $92  $1,329  $64 

 

As of March 31, 2023, the Company recorded gross unrecognized tax benefits of $92, all of which, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties accrued on uncertain income tax positions in other expense and general and administrative expense, respectively. Interest and penalties included in other long-term liabilities on the accompanying Consolidated Balance Sheets of the Company were $0 for each of the years ended March 31, 2023, 2022 and 2021. The Company does not expect a material change in unrecognized tax benefits or interest reversal in the next 12 months.

 

The Company files income tax returns in the U.S. various states and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The following tax years remain subject to examination:

 

Significant Jurisdictions Open Years 
U.S. Federal  2019 - 2021 
U.S. States  2018 - 2021 
Foreign  2016 - 2021 

 

In various jurisdictions, years prior to those listed above remain open solely for the purposes of examination of the Company’s NOL and credit carryforwards.