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INCOME TAXES | 12 Months Ended
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Jan. 31, 2023
INCOME TAXES |
INCOME TAXES | 9. INCOME TAXES The provision for income taxes is based on the following pretax income (loss):
|  | Years Ended |
|  | January 31, |
Domestic and Foreign Pretax Income (Loss) |  | 2023 |  |  | 2022 |
Domestic |  | $ 15,322 |  |  | $ | 1,519 |
Foreign |  |  | (9,851) |  |  |  | 14,634 |
Total |  | $ | 5,471 |  |  | $ | 16,153 |
|  | Years Ended |
|  | January 31, |
|  | 2023 |  |  | 2022 |
Income Tax Expense (Benefit) |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | 2 |  |  | ($171) |
State and other taxes |  |  | 68 |  |  |  | 88 |
Foreign |  |  | 3,450 |  |  |  | 4,205 |
Total Current Tax Expense |  | $ | 3,520 |  |  | $ | 4,122 |
Deferred: |  |  |  |  |  |  |  |
Domestic |  | ($756 | ) |  | $ | 526 |
Foreign |  |  | 834 |  |  |  | 133 |
Total Deferred Tax Expense |  | $78 |  |  | $ | 659 |
Total Income Taxes |  | $ | 3,598 |  |  | $ | 4,781 |
The following is a reconciliation of the effective income tax rate to the Federal statutory rate:
|  | Years Ended January 31, |
|  | 2023 |  |  | 2022 |
Statutory rate |  |  | 21.00 | % |  |  | 21.00 | %
State Income Taxes, Net of Federal Tax Benefit |  |  | 0.05 | % |  |  | (0.01 | )%
Adjustment to Deferred |  |  | 13.54 | % |  |  | (0.26 | )%
GILTI |  |  | 24.84 | % |  |  | 4.11 | %
Foreign Tax Credit - GILTI |  |  | (14.86 | )% |  |  | - |
Section 250 Deduction |  |  | (15.74 | )% |  |  | - |
Permanent Differences |  |  | 0.07 | % |  |  | (0.83 | )%
Valuation Allowance-Deferred Tax Asset |  |  | 6.41 | % |  |  | 4.81 | %
Foreign Tax Credit |  |  | (9.74 | )% |  |  | (7.34 | )%
Section 78 Gross-up |  |  | 6.64 | % |  |  | - |
Argentina Flow Through Loss |  |  | 1.09 | % |  |  | 1.36 | %
Foreign Dividend & Subpart F |  |  | - |  |  |  | (5.27 | )%
Withholding Taxes |  |  | 36.55 | % |  |  | - |
Foreign Rate Differential |  |  | 2.11 | % |  |  | 9.22 | %
Change in State Apportionment Rate |  |  | (1.38 | )% |  |  | 3.52 | %
Foreign employee benefits |  |  | (3.58 | )% |  |  | - |
Foreign Dividends Paid to U.S. |  |  | 73.01 | % |  |  | - |
Foregin Dividends Received Deduction |  |  | (73.01 | )% |  |  | - |
Other |  |  | (1.25 | )% |  |  | (0.71 | )%
Effective Rate |  |  | 65.74 | % |  |  | 29.60 | %
The tax effects of temporary cumulative differences which give rise to deferred tax assets are summarized as follows:
|  | Years Ended January 31, |
|  | 2023 |  |  | 2022 |
Deferred tax assets: |  |  |  |  |  |
Inventories |  | $ | 1,147 |  |  | $ | 806 |
US tax loss carryforwards, including work opportunity credit |  |  | 186 |  |  |  | 167 |
Accounts receivable and accrued rebates |  |  | 278 |  |  |  | 145 |
Accrued compensation and other |  |  | 123 |  |  |  | 211 |
India reserves - US deduction |  |  | 22 |  |  |  | 32 |
Equity based compensation |  |  | 1,178 |  |  |  | 807 |
Foreign tax credit carry-forward |  |  | 3,123 |  |  |  | 3,209 |
State and local carry-forwards |  |  | 18 |  |  |  | 16 |
Depreciation and amortization |  |  | (155 | ) |  |  | (186 | )
Prepaid expenses |  |  | (175 | ) |  |  | (219 | )
Brazil write-down |  |  | - |  |  |  | 196 |
Right-of-use asset |  |  | (697 | ) |  |  | (738 | )
Operating lease liability |  |  | 732 |  |  |  | 762 |
Foreign carry-forwards |  |  | 438 |  |  |  | - |
Withholding taxes |  |  | (769 | ) |  |  | - |
Other |  |  | 107 |  |  |  | 93 |
Deferred tax asset |  |  | 5,556 |  |  |  | 5,282 |
Less valuation allowance |  |  | (3,561 | ) |  |  | (3,210 | )
Net deferred tax asset |  | $ | 1,995 |  |  | $ | 2,072 |
|  | January 31, |
Balance sheet classification |  | 2023 |  |  | 2022 |
Long-term deferred tax asset |  | $ | 2,764 |  |  | $ | 2,072 |
Long-term deferred tax liability |  | $ | 769 |  |  | - |
The benefit relating to capital loss, operating loss, and credit carryforwards included in the above table at January 31, 2023, consisted of:
|  | Operating Loss |  |  | Benefit Amount |  |  | Valuation Allowance |  |  | Expiration Beginning In |
State operating loss carryforwards |  | $ | 19,564 |  |  | $ | 18 |  |  | $ | (1 | ) |  | 2028 |
Foreign tax credit carryforwards |  |  |  |  |  |  | 3,123 |  |  |  | (3,123 | ) |  | 2024 |
Federal credit carryforwards |  |  |  |  |  |  | 186 |  |  |  | - |  |  | 2035 |
Mexico operating loss carryforwards |  |  | 1,457 |  |  |  | 437 |  |  |  | (437 | ) |  | 2033 |
Total |  |  |  |  |  | $ | 3,764 |  |  | $ | (3,561 | ) |  |  |
Significant net operating loss carryforwards were generated in the state of Alabama prior to the change in apportionment factor in 2021 which decreased the amount of income to be apportioned to Alabama in the future and therefore decreasing carryforward benefit available related to state operating losses. Indefinite Reinvestment Assertion 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. During FY23 the Company changed its’ permanent reinvestment assertions for its Chinese operations due to increased volatility of the Chinese yuan and an updated evaluation of investment strategies. The Company’s plans are to repatriate a total of $20.0 million from China and recorded withholding taxes of $2.0 million which are included in income tax expense. During FY23 the Company’s subsidiaries in Canada, China and Hong Kong declared and paid total dividends of $15.5 million of which $12.5 million came from China. 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 FY19 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 2021 with no significant issues noted and we believe our tax positions are reasonably stated as of January 31, 2023. The 2022 tax review will be performed before May 31, 2023 in China. 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, 2023 and January 31, 2022 was $3.6 million and $3.2 million, respectively.

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