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Income Taxes
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

 7.  Income Taxes

 

The amounts of income tax expense (benefit) reflected in operations is as follows:

 

   2016  2015
Current:          
Federal  $566,361   $1,304,253 
    State   (5,648)   164,913 
    Foreign   984,469    553,259 
    1,545,182    2,022,425 
           
Deferred:          
Federal   83,290    (196,476)
    State   17,233    (5,077)
    100,523    (201,553)
   $1,645,705   $1,820,872 

 

 

The current state tax provision was comprised of taxes on income, the minimum capital tax and other franchise taxes related to the jurisdictions in which the Company's facilities are located.

 

A summary of United States and foreign income before income taxes follows:

 

   2016  2015
United States  $2,008,065   $3,256,251 
Foreign   5,488,638    3,358,146 
   $7,496,703   $6,614,397 

 

 

As discussed in Note 10 below, for segment reporting, Direct Import sales are included in the United States segment. However, the revenues are earned by our Hong Kong subsidiary and related income taxes are paid in Hong Kong whose rate approximates 16.5%. As such, income of the Asian subsidiary is included in the foreign income before taxes.

 

The following schedule reconciles the amounts of income taxes computed at the United States statutory rates to the actual amounts  reported in operations:

 

   2016  2015
Federal income          
taxes at          
34% statutory rate  $2,496,270   $1,878,464 
State and local          
taxes, net of          
federal income          
tax effect   18,998    105,492 
Permanent items   (25,077)   328,075 
Foreign tax rate difference   (919,038)   (601,269)
Change in deferred income tax          
 valuation allowance   74,552    110,110 
           
 Provision for income taxes  $1,645,705   $1,820,872 

 

 

The following summarizes deferred income tax assets and liabilities:

 

   2016  2015
Deferred income tax liabilities:          
Plant, property          
and equipment  $604,271   $536,759 
    604,271    536,759 
           
Deferred income tax assets:          
Asset valuations   720,189    677,994 
Operating loss          
carryforwards and credits   121,658    110,110 
Pension   227,681    189,920 
Foreign tax credit   186,504    186,504 
Other   593,140    753,219 
    1,849,172    1,917,747 
Net deferred          
income tax asset before valuation allowance   1,244,901    1,380,988 
Valuation          
 allowance   (74,552)   (110,110)
Net deferred          
 income tax asset  $1,170,349   $1,270,878 

 

 

In 2016, the Company evaluated its tax positions for years which remain subject to examination by major tax jurisdictions, in accordance with the requirements of ASC 740 and as a result concluded no adjustment was necessary. The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company’s evaluation of uncertain tax positions was performed for the tax years ended December 31, 2013 and forward, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2016.



In accordance with the Company’s accounting policies, any interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

 

The Company provides deferred income taxes on foreign subsidiary earnings, which are not considered permanently reinvested. Earnings permanently reinvested would become taxable upon the sale or liquidation of a foreign subsidiary or upon the remittance of dividends. The Company plans to repatriate future earnings of its Canadian subsidiary and will provide for U.S. income taxes accordingly. Foreign subsidiary earnings of $7,158,497 and $3,157,020 are considered permanently reinvested as of December 31, 2016 and 2015, respectively, and no deferred income taxes have been provided on these foreign earnings. These unremitted foreign earnings are primarily related to the Hong Kong subsidiary, and there is no unrecognized deferred income tax liability for these permanently reinvested earnings.

 

Due to the uncertain nature of the realization of the Company's deferred income tax assets based on past performance of its German subsidiary and carry forward expiration dates, the Company has recorded a valuation allowance for the amount of deferred income tax assets which are not expected to be realized. This valuation allowance, all of which is related to deferred tax assets resulting from net operating losses of the Company’s German subsidiary, is subject to periodic review, and, if the allowance is reduced, the tax benefit will be recorded in future operations as a reduction of the Company's tax expense.