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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

Note 7. Income Taxes

The provision (benefit) for income taxes consists of the following:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Federal:

 

 

 

 

 

 

 

 

 

Current

 

$

4

 

 

$

(579

)

 

$

(511

)

Deferred

 

 

8

 

 

 

4,667

 

 

 

701

 

Total Federal

 

 

12

 

 

 

4,088

 

 

 

190

 

State and Local:

 

 

 

 

 

 

 

 

 

Current

 

 

(539

)

 

 

(762

)

 

 

769

 

Deferred

 

 

17

 

 

 

1,602

 

 

 

346

 

Total State and Local

 

 

(522

)

 

 

840

 

 

 

1,115

 

Foreign

 

 

 

 

 

 

 

 

 

Current

 

 

848

 

 

 

255

 

 

 

1,051

 

Deferred

 

 

—

 

 

 

(90

)

 

 

72

 

Total Foreign

 

 

848

 

 

 

165

 

 

 

1,123

 

Total

 

$

338

 

 

$

5,093

 

 

$

2,428

 

 

The reconciliation between the provision (benefit) for income taxes and the expected provision (benefit) for income taxes at the U.S. federal statutory rate is as follows:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

U.S. Operations

 

$

(20,116

)

 

$

(53,947

)

 

$

15,146

 

Foreign Operations

 

 

2,775

 

 

 

(506

)

 

 

5,003

 

Income (loss) before income taxes

 

 

(17,341

)

 

 

(54,453

)

 

 

20,149

 

Federal statutory rate

 

 

21

%

 

 

21

%

 

 

21

%

Provision (benefit) for income taxes at federal statutory rate

 

 

(3,642

)

 

 

(11,435

)

 

 

4,231

 

State taxes, net of federal benefit

 

 

(385

)

 

 

(2,098

)

 

 

812

 

Foreign tax rate differential

 

 

135

 

 

 

90

 

 

 

(60

)

Change in valuation allowance

 

 

2,850

 

 

 

18,353

 

 

 

—

 

Excess tax benefit recognized

 

 

287

 

 

 

(232

)

 

 

(2,159

)

Foreign Derived Intangible Income

 

 

—

 

 

 

—

 

 

 

(976

)

Foreign tax credit

 

 

(96

)

 

 

—

 

 

 

(770

)

Research and development credit

 

 

(558

)

 

 

(400

)

 

 

(878

)

Global intangible low taxed income

 

 

858

 

 

 

325

 

 

 

530

 

Change in unrecognized tax benefits

 

 

(330

)

 

 

(382

)

 

 

673

 

Section 162(m)

 

 

1,237

 

 

 

395

 

 

 

634

 

Other

 

 

(18

)

 

 

477

 

 

 

391

 

Provision for income taxes

 

$

338

 

 

$

5,093

 

 

$

2,428

 

 

The tax effects of significant items comprising the Company’s deferred tax assets (liabilities) are as follows:

 

 

 

December 31, 2023

 

 

December 31, 2022

 

 

 

(in thousands)

 

Allowance for doubtful accounts

 

$

4

 

 

$

4

 

Fixed assets

 

 

(764

)

 

 

(897

)

Goodwill

 

 

(1,402

)

 

 

(1,268

)

Employee benefits

 

 

2,789

 

 

 

2,254

 

Intangible assets

 

 

1,614

 

 

 

1,573

 

Inventories

 

 

1,434

 

 

 

2,846

 

Lease liability

 

 

1,977

 

 

 

2,227

 

Net operating loss

 

 

8,372

 

 

 

7,354

 

Research and development expenses

 

 

6,154

 

 

 

3,835

 

Right of use asset

 

 

(1,754

)

 

 

(2,010

)

Sales reserves

 

 

1,524

 

 

 

1,501

 

Unrecognized tax benefits

 

 

311

 

 

 

470

 

Other

 

 

1,376

 

 

 

852

 

 

 

21,635

 

 

 

18,741

 

Valuation allowance

 

 

(22,094

)

 

 

(19,244

)

Net deferred tax assets (liabilities)

 

$

(459

)

 

$

(503

)

 

 

At December 31, 2023, the Company had $26.2 million of indefinite lived federal net operating loss carryforwards and $48.0 million of state net operating loss carryforwards, which will begin to expire in 2029. As of December 31, 2023, the Company has federal research and development credit carryforwards of $0.8 million, which will expire in 2042 if unutilized, and state research and development credit carryforwards of $0.4 million, which carryforward until exhausted. Utilization of these operating loss carryforwards and credits may be subject to an annual limitation based on changes in ownership, as defined by Section 382 & 383 of the Internal Revenue Code of 1986, as amended.

 

As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred taxes will not be realized. The Company considers all positive and negative evidence in

determining if, based on the weight of such evidence, a valuation allowance is required. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, the Company establishes a valuation allowance. The significant 2022 pre-tax loss, coupled with cumulative book losses projected in early future years, was significant negative evidence considered by the Company in recording an $18.4 million increase to the valuation allowance as of December 31, 2022. The valuation allowance is retained for the year ended December 31, 2023, with an increase to the valuation allowance of $2.8 million.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

 

 

 

December 31, 2023

 

 

December 31, 2022

 

 

 

(in thousands)

 

Gross unrecognized tax benefit, beginning of period

 

$

3,002

 

 

$

3,415

 

Additions based on tax positions related to the current year

 

 

128

 

 

 

150

 

Additions related to tax positions in a prior year

 

 

—

 

 

 

158

 

Settlements related to tax positions in a prior period

 

 

(32

)

 

 

(321

)

Decreases based on tax positions in a prior period

 

 

(814

)

 

 

(400

)

Gross unrecognized tax benefit, end of period

 

$

2,284

 

 

$

3,002

 

 

 

The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold, and establishes tax reserves for uncertain tax positions that do not meet this threshold. The Company settled uncertain tax positions in certain jurisdictions, of approximately $0.1 million for the year ended December 31, 2023 and $0.3 million for the year ended December 31, 2022. To the extent these unrecognized tax benefits are ultimately recognized, approximately $2.0 million will impact the Company’s effective tax rate and $0.3 million will be offset by a valuation allowance in future periods. The Company is filing for relief provisions in certain jurisdictions and based on such anticipated filings, it is reasonably possible that amounts of unrecognized tax benefits could decrease by $0.7 million within the next twelve months. As of December 31, 2023, the Company had uncertain tax positions of $2.9 million, inclusive of $0.6 million of interest and penalties.

The Company is not currently under examination by federal, state or foreign taxing jurisdictions. Further, at any given time, multiple tax years may be subject to examination by various taxing authorities. The recorded amounts of income tax are subject to adjustment upon examination, changes in interpretation and changes in judgment utilized in determining estimates.

The Company considers the earnings of its foreign entities to be permanently reinvested outside the United States based on estimates that future cash generation will be sufficient to meet future domestic cash needs. Accordingly, deferred taxes have not been recorded for the $16.1 million of undistributed earnings of the Company's foreign subsidiaries. As a result of the Tax Cuts and Jobs Act (“TCJA”) and the current U.S. taxation of deemed repatriated earnings, the additional taxes that might be payable upon repatriation of foreign earnings are not significant. All other outside basis differences not related to earnings were impractical to account for at this period of time and are currently considered as being permanent in duration.

The TCJA introduced a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a measure to tax certain intercompany payments under the base erosion anti-abuse tax “BEAT” regime. For the years ended December 31, 2023 and 2022, the Company did not generate intercompany transactions that met the BEAT threshold but does have to include GILTI relating to the Company's foreign subsidiaries. The Company elected to account for GILTI as a current period cost.

The Company files U.S., state, and foreign income tax returns in jurisdictions with various statutes of limitations. Below is a summary of the filing jurisdictions and open tax years:

 

 

 

Open Years

U.S. Federal

 

2020 - 2022

U.S. State and Local

 

2019 - 2022

Non-U.S.

 

2020 - 2022

On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. The Company included the impact of the research and development expenditures in its December 31, 2023 and 2022 tax expense. The Inflation Reduction Act includes a 1% excise tax on publicly traded US corporations for the value of its stock repurchased after December 31, 2022. The Company did not incur excise tax on stock repurchased for the year ended December 31, 2023. The Company will continue to monitor possible future impact of changes in tax legislation.