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Income Taxes

6 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

8. Income Taxes

A summary of our total income tax expense and effective income tax rate for the three and six months ended December 31, 2017 and 2016 is as follows:

		Three Months Ended December 31,								Six Months Ended December 31,
		2017				2016				2017				2016
Income before income taxes		$	229,842			$	1,338,293			$	505,522			$	1,743,989
Income tax expense (benefit)		$	(193,508	)		$	240,626			$	(135,524	)		$	505,826
Effective income tax rate			-84	%			18	%			-27	%			29	%

The difference between our effective tax rates in the periods presented above and the federal statutory rate is primarily due to a tax benefit from our domestic losses being recorded with a full valuation allowance, as well as the effect of foreign earnings taxed at rates differing from the federal statutory rate. As of December 31, 2017, our Latvia operations are subject to a statutory income tax rate of 15%, and our China operations are subject to statutory income tax rates of 15% and 25% for LPOIZ and LPOI, respectively. During the three months ended December 31, 2017, the statutory tax rate applicable to LPOIZ was lowered from 25% to 15% in accordance with an incentive program for technology companies. The lower rate applies to LPOIZ’s 2017 tax year, beginning January 1, 2017. Accordingly, we recorded a tax benefit during the three months ended December 31, 2017 related to this retroactive rate change.

We record net deferred tax assets to the extent we believe it is more likely than not that these assets will be realized. Based on the level of historical taxable income, we have provided a full valuation allowance against our net deferred tax assets as of December 31, 2017 and June 30, 2017. The net deferred tax asset results from federal and state tax credits with indefinite carryover periods that management expects to utilize in a future period.

Tax Cuts and Jobs Act

In December 2017, the United States (“U.S.”) enacted the Tax Cuts and Jobs Act (the “2017 Act”), which changes existing U.S. tax law and includes various provisions that are expected to affect companies. Among other things, the 2017 Act (i) changes U.S. corporate tax rates, (ii) generally reduces a company’s ability to utilize accumulated net operating losses, and (iii) requires the calculation of a one-time transition tax on certain foreign earnings and profits (“E&P”) that had not been previously repatriated. In addition, the 2017 Act impacts a company’s estimates of its deferred tax assets and liabilities.

Pursuant to U.S. GAAP, changes in tax rates and tax laws are accounted for in the period of enactment, and the resulting effects are recorded as discrete components of the income tax provision related to continuing operations in the same period. We continue to evaluate the impact of the 2017 Act on our financial statements. Based on our initial assessments to date, we expect the one-time transition tax on certain foreign E&P to have a minimal impact on us as we anticipate that we will be able to utilize our existing net operating losses to substantially offset any taxes payable on foreign E&P. Additionally, we expect significant adjustments to our gross deferred tax assets and liabilities; however, we also expect to record a corresponding offset to our estimated full valuation allowance against our net deferred tax assets, which should result in minimal net effect to our provision for income taxes.