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Income Taxes | 12 Months Ended
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Mar. 31, 2020
Income Taxes [Abstract] |
Income Taxes |
17. | Income Taxes
In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020. The CARES Act: (i) removes certain net operating loss deduction and carry-back limitations originally imposed by the Tax Cuts and Jobs Act of 2017, (ii) increases IRC §163(j) business interest expense limitations, and (iii) technical correction on recovery period for qualified improvement property (QIP), allowing QIP to be eligible for bonus depreciation. Specifically, the Company may now carry back net operating losses originating in the year ended March 31, 2019 to the year ended March 31, 2017, resulting in an increase to its income tax receivable of $1,002,000 as of March 31, 2020. On December 22, 2017, comprehensive tax reform legislation known as the Act was signed into law. The Act amended the Internal Revenue Code to reduce U.S. tax rates and modify policies, credits and deductions for individuals and businesses. The income tax expense is as follows:
|  | Years Ended March 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Current tax expense |  |  |  |  |  |  |  |  |
Federal |  | $ | 5,313,000 |  |  | $ | 680,000 |  |  | $ | 12,187,000 |
State |  |  | 1,454,000 |  |  |  | 647,000 |  |  |  | 1,425,000 |
Foreign |  |  | 1,566,000 |  |  |  | 1,723,000 |  |  |  | 1,194,000 |
Total current tax expense |  |  | 8,333,000 |  |  |  | 3,050,000 |  |  |  | 14,806,000 |
Deferred tax (benefit) expense |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (4,516,000 | ) |  |  | (2,087,000 | ) |  |  | 949,000 |
State |  |  | (1,567,000 | ) |  |  | (295,000 | ) |  |  | 393,000 |
Foreign |  |  | (3,261,000 | ) |  |  | (400,000 | ) |  |  | (23,000 | )
Total deferred tax (benefit) expense |  |  | (9,344,000 | ) |  |  | (2,782,000 | ) |  |  | 1,319,000 |
Total income tax (benefit) expense |  | $ | (1,011,000 | ) |  | $ | 268,000 |  |  | $ | 16,125,000 |
Deferred income taxes consist of the following:
|  | March 31, 2020 |  |  | March 31, 2019 |
Assets |  |  |  |  |  |
Allowance for bad debts |  | $ | 1,037,000 |  |  | $ | 1,005,000 |
Customer allowances earned |  |  | 3,549,000 |  |  |  | 3,177,000 |
Allowance for stock adjustment returns |  |  | 1,743,000 |  |  |  | 2,073,000 |
Inventory adjustments |  |  | 5,567,000 |  |  |  | 3,701,000 |
Stock options |  |  | 2,427,000 |  |  |  | 2,221,000 |
Operating lease liabilities (1) |  |  | 19,396,000 |  |  |  | - |
Estimate for returns |  |  | 10,839,000 |  |  |  | 2,107,000 |
Accrued compensation |  |  | 1,964,000 |  |  |  | 1,578,000 |
Net operating losses |  |  | 4,091,000 |  |  |  | 2,088,000 |
Tax credits |  |  | 1,343,000 |  |  |  | 1,495,000 |
Other |  |  | 1,620,000 |  |  |  | 5,776,000 |
Total deferred tax assets |  | $ | 53,576,000 |  |  | $ | 25,221,000 |
Liabilities |  |  |  |  |  |  |  |
Plant and equipment, net |  |  | (5,175,000 | ) |  |  | (3,316,000 | )
Intangibles, net |  |  | (4,700,000 | ) |  |  | (5,390,000 | )
Operating lease (1) |  |  | (15,371,000 | ) |  |  | - |
Other |  |  | (3,966,000 | ) |  |  | (3,278,000 | )
Total deferred tax liabilities |  | $ | (29,212,000 | ) |  | $ | (11,984,000 | )
Less valuation allowance |  | $ | (5,493,000 | ) |  | $ | (3,748,000 | )
Total |  | $ | 18,871,000 |  |  | $ | 9,489,000 |
(1) | Adoption of the new lease standard as of April 1, 2019 (see Note 2) resulted in the recognition of a deferred tax asset for operating lease liabilities and a deferred tax liability for operating lease assets. These temporary differences will reverse over the estimated term of the relevant operating leases. As of March 31, 2019, the deferred tax assets associated with operating leases were reported as other deferred tax assets under legacy US GAAP.
As of March 31, 2020, the Company had state net operating loss carryforwards of $1,689,000 and foreign net operating loss carryforwards of $14,953,000. The state net operating loss carryforwards expire beginning fiscal year 2034, and the foreign net operating loss carryforwards expire beginning fiscal year 2038. As of March 31, 2020, the Company also had investment tax credits carryforward of $1,343,000, which will expire beginning fiscal year 2032. A full valuation allowance was established on the foreign net operating loss and tax credits carryforward as the Company believes it is more likely than not these tax attributes would not be realizable in the future. Realization of deferred tax assets is dependent upon the Company’s ability to generate sufficient future taxable income. Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against the Company’s net deferred tax assets. The Company makes these estimates and judgments about its future taxable income that are based on assumptions that are consistent with the Company’s future plans. A valuation allowance is established when the Company believes it is not more likely than not all or some of a deferred tax assets will be realized. In evaluating the Company’s ability to recover deferred tax assets within the jurisdiction in which they arise, the Company considers all available positive and negative evidence. Deferred tax assets arising primarily as a result of non-US net operating loss carry-forwards and non-US research and development credits in connection with the Company’s acquisitions have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods. Should the actual amount differ from the Company’s estimates, the amount of the valuation allowance could be impacted. For the years ended March 31, 2020, 2019, and 2018, the primary components of the Company’s income tax expense were: (i) federal income taxes, (ii) the impact of net operating loss carry-backs in connection with the CARES Act, (iii) foreign income taxed at rates that are different from the federal statutory rate, (iv) change in realizable deferred tax items, (v) impact of the non-deductible executive compensation under Internal Revenue Code Section 162(m), (vi) income taxes associated with uncertain tax positions, (vii) the change in the blended state rate, and (viii) the excess tax benefit relating to share-based compensation. The difference between the income tax expense at the federal statutory rate and the Company’s effective tax rate is as follows:
|  | Years Ended March 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Statutory federal income tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 31.5 | %
State income tax rate, net of federal benefit |  |  | (3.7 | )% |  |  | (3.7 | )% |  |  | 3.6 | %
Excess tax benefit from stock compensation |  |  | (1.3 | )% |  |  | 0.7 | % |  |  | (0.7 | )%
Foreign income taxed at different rates |  |  | 13.8 | % |  |  | - | % |  |  | (2.6 | )%
Return to provision adjustments |  |  | (1.5 | )% |  |  | - | % |  |  | - | %
Warrants |  |  | - | % |  |  | - | % |  |  | (2.1 | )%
Non-deductible executive compensation |  |  | (4.0 | )% |  |  | (7.3 | )% |  |  | 1.0 | %
Change in valuation allowance |  |  | (18.7 | )% |  |  | (15.3 | )% |  |  | 4.8 | %
Net operating loss carryback |  |  | 4.8 | % |  |  | - | % |  |  | - | %
Effects of mandatory redeemed repatriation |  |  | - | % |  |  | - | % |  |  | 1.5 | %
Effects of U.S. tax rate changes |  |  | - | % |  |  | 0.3 | % |  |  | 8.0 | %
Uncertain tax positions |  |  | 2.1 | % |  |  | 1.8 | % |  |  | 0.6 | %
Research and development credit |  |  | 1.1 | % |  |  | 1.3 | % |  |  | (0.2 | )%
Non-deductible transaction costs |  |  | - | % |  |  | (2.1 | )% |  |  | - | %
Other income tax |  |  | (1.4 | )% |  |  | (0.2 | )% |  |  | 0.2 | %
|  |  | 12.2 | % |  |  | (3.5 | )% |  |  | 45.6 | %
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions with varying statutes of limitations. At March 31, 2020, the Company is not under examination in any jurisdiction and the years ended March 31, 2019, 2018, 2017, and 2016 remain subject to examination. The Company believes no significant changes in the unrecognized tax benefits will occur within the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | Years Ended March 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Balance at beginning of period |  | $ | 1,083,000 |  |  | $ | 1,219,000 |  |  | $ | 1,092,000 |
Additions based on tax positions related to the current year |  |  | 362,000 |  |  |  | 91,000 |  |  |  | 234,000 |
Reductions for tax positions of prior year |  |  | (434,000 | ) |  |  | (227,000 | ) |  |  | (107,000 | )
Balance at end of period |  | $ | 1,011,000 |  |  | $ | 1,083,000 |  |  | $ | 1,219,000 |
At March 31, 2020, 2019 and 2018, there are $823,000, $938,000 and $1,054,000 of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as part of income tax expense. During the years ended March 31, 2020, 2019, and 2018, the Company recognized approximately $(50,000), $(23,000), and $5,000 in interest and penalties, respectively. The Company had approximately $74,000 and $124,000 for the payment of interest and penalties accrued at March 31, 2020 and 2019, respectively.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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