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INCOME TAXES | 12 Months Ended
--- | ---
Jan. 31, 2021
INCOME TAXES |
7.INCOME TAXES | 7. INCOME TAXES The provision for income taxes is based on the following pretax income (loss):
|  | Years Ended |
|  | January 31, |
Domestic and Foreign Pretax Income |  | 2021 |  |  | 2020 |
Domestic |  | $ | 8,414 |  |  | $ | 466 |
Foreign |  |  | 35,466 |  |  |  | 5,287 |
Total |  | $ | 43,880 |  |  | $ | 5,753 |
|  | Years Ended |
|  | January 31, |
|  | 2021 |  |  | 2020 |
Income Tax Expense |  |  |  |  |  |
Current: |  |  |  |  |  |
Federal |  | $ | 41 |  |  | $ | 16 |
State and other taxes |  |  | 54 |  |  |  | 38 |
Foreign |  |  | 5,408 |  |  |  | 1,090 |
Total Current Tax Expense |  | $ | 5,503 |  |  | $ | 1,144 |
Deferred: |  |  |  |  |  |  |  |
Domestic |  | $ | 3,271 |  |  | $ | 1,328 |
Total Income Taxes |  | $ | 8,774 |  |  | $ | 2,472 |
The following is a reconciliation of the effective income tax rate to the Federal statutory rate:
|  | Years Ended January 31, |
|  | 2021 |  |  | 2020 |
Statutory rate |  |  | 21.00 | % |  |  | 21.00 | %
State Income Taxes, Net of Federal Tax Benefit |  |  | 0.90 |  |  |  | 4.47 |
Adjustment to Deferred |  |  | 0.29 |  |  |  | 0.70 |
GILTI |  |  | 4.43 |  |  |  | 17.96 |
Permanent Differences |  |  | (0.09 | ) |  |  | 2.47 |
Valuation Allowance-Deferred Tax Asset |  |  | 2.20 |  |  |  | — |
Foreign Tax Credit |  |  | (7.61 | ) |  |  | — |
Foreign Dividend & Subpart F |  |  | 2.14 |  |  |  | — |
Foreign Rate Differential |  |  | (4.01 | ) |  |  | (3.51 | )
Rate Change |  |  | ---- |  |  |  | 0.20 |
Other |  |  | 0.74 |  |  |  | (0.32 | )
Effective Rate |  |  | 19.99 | % |  |  | 42.97 | %
The tax effects of temporary cumulative differences which give rise to deferred tax assets are summarized as follows:
|  | Years Ended January 31, |
|  | 2021 |  |  | 2020 |
Deferred tax assets: |  |  |  |  |  |
Inventories |  | $ | 902 |  |  | $ | 672 |
US tax loss carryforwards, including work opportunity credit* |  |  | 167 |  |  |  | 3,524 |
Accounts receivable and accrued rebates |  |  | 378 |  |  |  | 247 |
Accrued compensation and other |  |  | 302 |  |  |  | 179 |
India reserves - US deduction |  |  | 43 |  |  |  | 45 |
Equity based compensation |  |  | 535 |  |  |  | 171 |
Foreign tax credit carry-forward |  |  | 2,430 |  |  |  | 1,348 |
State and local carry-forwards |  |  | 805 |  |  |  | 990 |
Argentina timing difference |  |  | (28 | ) |  |  | 43 |
Depreciation and other |  |  | (52 | ) |  |  | 55 |
Amortization |  |  | (213 | ) |  |  | (206 | )
Brazil write-down |  |  | 220 |  |  |  | 220 |
Right-of-use asset |  |  | (239 | ) |  |  | 549 |
Operating lease liability |  |  | 241 |  |  |  | (550 | )
Deferred tax asset |  |  | 5,491 |  |  |  | 7,287 |
Less valuation allowance |  |  | (2,652 | ) |  |  | (1,348 | )
Net deferred tax asset |  | $ | 2,839 |  |  | $ | 5,939 |
Tax Reform On December 22, 2017, federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law. The 2017 Tax Cuts and Jobs Act (the Tax Act) reduced the federal corporate income tax rate to 21% from 35% effective January 1, 2018. The Tax Act requires us to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, re-measuring our US deferred tax assets as well as reassessing the net realizability of our deferred tax assets. The Company completed this re-measurement and reassessment in FY18. While the Tax Act provides for a modified territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Re-measurement and reassessment of the GILTI tax resulted in a charge to tax expense of $1.1 million and $1.0 million in FY21 and FY20, respectively. The Company intends to account for the GILTI tax in the period in which it is incurred. Though this non-cash expense (due to available NOL’s) had a materially negative impact on FY21 earnings, the Tax Act also changes the taxation of foreign earnings, and companies generally will not be subject to United States federal income taxes upon the receipt of dividends from foreign subsidiaries. We previously considered substantially all of the earnings in our non-U.S. subsidiaries to be indefinitely reinvested outside the U.S. and, accordingly, recorded no deferred income taxes on such earnings. At this time, the applicable provisions of the Tax Act have been fully analyzed and our intention with respect to unremitted foreign earnings is to continue to indefinitely reinvest outside the U.S. those earnings needed for working capital or additional foreign investment. As stated above, GILTI is recognized in the period it is incurred and is not considered with regard to deferred income tax on unremitted E&P. All international subsidiaries are impacted by GILTI calculation. Income Tax Audits The Company is subject to US federal income tax, as well as income tax in multiple US state and local jurisdictions and a number of foreign jurisdictions. Returns for the years since FY17 are still open based on statutes of limitation only. Chinese tax authorities have performed limited reviews on all Chinese subsidiaries as of tax years 2008 through 2018 with no significant issues noted and we believe our tax positions are reasonably stated as of January 31, 2021. Weifang Meiyang Products Co., Ltd. (“Meiyang”), one of our Chinese operations, was changed to a trading company from a manufacturing company in Q1 FY16 and all direct workers and equipment were transferred from Meiyang to Weifang Lakeland Safety Products Co., Ltd., (“WF”), another entity of our Chinese operation thereby reducing our tax exposure. The 2019 tax review will be performed before May 30, 2020 in China. As mentioned above, it’s the Company’s intention is to reinvest outside the US those earnings needed for working capital or foreign investment. As a result of the transition tax, $5.0 million of foreign income was repatriated at the end of FY18. However, the Company has no intention to repatriate earnings with regards with GILTI. It is not practicable to determine the amount of unrecognized deferred tax liabilities related to the Company's investments in foreign subsidiaries that are permanent In duration. the fiscal year ended January 31, 2021, no dividends were declared. It is the Company’s practice and intention to reinvest the earnings of our non-US subsidiaries in their operations with the exception of the dividend plan. Change in Valuation Allowance We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. The valuation allowance for the year ended January 31, 2021 and January 31, 2020 was $2.7 million and $1.3 million 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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