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Note 9 - Income Taxes
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

9. Income Taxes:

 

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 21% for the years ended  December 31, 2021,  December 31, 2020 and  December 31, 2019, to income before provision for income taxes as a result of the following (Dollar amounts in thousands of U.S. dollars): 

 

  

Year ended December 31,

 
  

2021

  

2020

  

2019

 
             

Income for the year before provision for income taxes

 $7,270  $10,760  $24,571 

Computed federal tax expense

  1,527   2,259   5,160 
             

Increase (decrease) in income tax expense resulting from:

            

State income taxes

  314   303   526 

Foreign earnings

  382   (175)  (444)

Changes in valuation allowance

  2,300   1,867   5,277 

Expired business tax credits

  -   1,044   - 

Excess tax benefits on share-based compensation

  (1,556)  (407)  (634)

Permanent differences

  205   (161)  16 

Others

  734   255   (728)

Provision for income taxes

 $3,906  $4,985  $9,173 

 

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21% ; (2) changing rules related to uses and limitations of net operating loss carry forwards created in tax years beginning after December 31, 2017; (3) bonus depreciation allows for full expensing of qualified property; (4) creating a new limitation on deductible interest expense; (5) eliminating the corporate alternative minimum tax; and (6) new tax rules related to foreign operations.

 

In Fiscal 2021, the Company did not utilize the bonus depreciation with respect to its continued investment in the Ting Fiber business. Despite this, due to the reduction in tax rate to 21%, it is unlikely we will ultimately be able to fully claim the Fiscal 2021 foreign taxes paid in future years as a foreign tax credit. As such, we have taken a valuation allowance on foreign tax credits not utilized for 2021 income tax purposes, the net negative effect of which is a $2.3 million addition to income tax expense.

 

In Fiscal 2020, the Company did not utilize the bonus depreciation with respect to its continued investment in the Ting Fiber business. Despite this, due to the reduction in tax rate to 21%, it is unlikely we will ultimately be able to fully claim the Fiscal 2020 foreign taxes paid in future years as a foreign tax credit. As such, we have taken a valuation allowance on foreign tax credits not utilized for 2020 income tax purposes and net operating losses not expected to be utilized in the future, the net negative effect of which is a $2.9 million addition to income tax expense.

 

In Fiscal 2019, the Company was able to utilize the bonus depreciation with respect to its continued investment in the Ting Fiber business. The impact of this, together with the reduction in tax rate to 21%, make it unlikely we will ultimately be able to fully claim the Fiscal 2019 foreign taxes paid in future years. In addition, the Company generated net operating losses of $0.3 million which it does not expect to be able to utilize in the future. As such, we have taken a valuation allowance on foreign tax credits not utilized for 2019 income tax purposes and net operating losses not expected to be utilized in the future, the net negative effect of which is a $5.3 million addition to income tax expense.

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2021, and  December 31, 2020 are presented below (Dollar amounts in thousands of U.S. dollars):

 

  

December 31, 2021

  

December 31, 2020

 

Deferred tax assets (liabilities):

        

Deferred tax assets:

        

Foreign tax credits and general business credits

 $13,531  $11,203 

Deferred revenue

  5,694   5,739 

Net operating losses

  537   1,452 

Accruals, including foreign exchange and other

  2,991   792 

Sub-total Deferred tax assets

  22,753   19,186 

Valuation allowance

  (13,531)  (11,232)

Total deferred tax assets

 $9,222  $7,954 

Deferred tax liabilities:

        

Prepaid registry fees and expenses

 $(18,165) $(16,909)

Amortization

  (6,578)  (7,083)

Limited life intangible assets

  (3,229)  (4,327)

Indefinite life intangible assets

  (2,969)  (2,847)

Foreign branch deferred tax liabilities

  (828)  (1,256)

Total deferred tax liability

 $(31,769) $(32,422)
         

Net deferred tax asset (liability)

 $(22,547) $(24,468)

 

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 not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the years in which those temporary differences become deductible. Management considers projected future taxable income, uncertainties related to the industry in which the Company operates, and tax planning strategies in making this assessment.

 

We believe it is more likely than not that our remaining deferred tax assets, net of the valuation allowance, will be realized based on current income tax laws, including those modified by the Tax Act, and expectations of future taxable income stemming from forecasted profits from ongoing operations and from the reversal of existing deferred tax liabilities.

 

The Company had nil total gross unrecognized tax benefits as of both December 31, 2021 and December 31, 2020.

 

The Company recognizes interest and penalties related to income tax matters within the provision for income taxes. No material interest and penalties were recognized as of December 31, 2021 and December 31, 2020.