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INCOME TAXES | 12 Months Ended
--- | ---
Jan. 31, 2024
INCOME TAXES |
INCOME TAXES | 10. 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) |  | 2024 |  |  | 2023 |
Domestic |  | $ | 8,648 |  |  | $ | 15,322 |
Foreign |  |  | 708 |  |  |  | (9,851 | )
Total |  | $ | 9,356 |  |  | $ | 5,471 |
The domestic and foreign pretax income in the schedule above reflects intercompany dividends paid to the U.S. from international subsidiaries of $11.4 million and $19.0 million for fiscal years ended January 31, 2024 and 2023, respectively.
|  | Years Ended |
|  | January 31, |
|  | 2024 |  |  | 2023 |
Income Tax Expense (Benefit) |  |  |  |  |  |
Current: |  |  |  |  |  |
Federal |  | $ | 17 |  |  | $ | 2 |
State and other taxes |  |  | 58 |  |  |  | 68 |
Foreign |  |  | 4,674 |  |  |  | 3,450 |
Total Current Tax Expense |  | $ | 4,749 |  |  | $ | 3,520 |
Deferred: |  |  |  |  |  |  |  |
Domestic |  | ($186) |  |  | ($756) |
Foreign |  |  | (633 | ) |  |  | 834 |
Total Deferred Tax Expense |  |  | (819 | ) |  | $ | 78 |
Total Income Taxes |  | $ | 3,930 |  |  | $ | 3,598 |
The following is a reconciliation of the effective income tax rate to the Federal statutory rate:
|  | Years Ended January 31, |
|  | 2024 |  |  | 2023 |
Statutory rate |  |  | 21.00 | % |  |  | 21.00 | %
State Income Taxes, Net of Federal Tax Benefit |  |  | 0.49 | % |  |  | 0.05 | %
Adjustment to Deferred |  |  | (23.26 | )% |  |  | 13.54 | %
GILTI |  |  | 9.07 | % |  |  | 24.84 | %
Foreign Tax Credit – GILTI |  |  | (2.42 | )% |  |  | (14.86 | )%
Section 250 Deduction |  |  | (4.92 | )% |  |  | (15.74 | )%
Permanent Differences |  |  | 0.20 | % |  |  | 0.07 | %
Valuation Allowance-Deferred Tax Asset |  |  | 33.29 | % |  |  | 6.41 | %
Foreign Tax Credit |  |  | (15.24 | )% |  |  | (9.74 | )%
Section 78 Gross-up |  |  | 0.77 | % |  |  | 6.64 | %
Argentina Flow Through Loss |  |  | 7.20 | % |  |  | 1.09 | %
Withholding Taxes |  |  | 5.72 | % |  |  | 36.55 | %
Foreign Rate Differential |  |  | 18.25 | % |  |  | 2.11 | %
Change in State Apportionment Rate |  |  | (1.48 | )% |  |  | (1.38 | )%
Foreign employee benefits |  |  | (1.58 | )% |  |  | (3.58 | )%
Foreign Dividends Paid to U.S. |  |  | 25.69 | % |  |  | 73.01 | %
Foreign Dividends Received Deduction |  |  | (25.69 | )% |  |  | (73.01 | )%
Earnout Adjustment |  |  | (5.70 | )% |  |  | --- |
Other |  |  | 0.62 | % |  |  | (1.25 | )%
Effective Rate |  |  | 42.01 | % |  |  | 65.74 | %
The tax effects of temporary cumulative differences which give rise to deferred tax assets are summarized as follows:
|  | Years Ended January 31, |
|  | 2024 |  |  | 2023 |
Deferred tax assets: |  |  |  |  |  |
Inventories |  | $ | 1,545 |  |  | $ | 1,147 |
US tax loss carryforwards, including work opportunity credit |  |  | 167 |  |  |  | 186 |
Accounts receivable and accrued rebates |  |  | 295 |  |  |  | 278 |
Accrued compensation and other |  |  | 441 |  |  |  | 123 |
India reserves - US deduction |  |  | 24 |  |  |  | 22 |
Equity based compensation |  |  | 346 |  |  |  | 1,178 |
Foreign tax credit carry-forward |  |  | 4,548 |  |  |  | 3,123 |
State and local carry-forwards |  |  | 1,256 |  |  |  | 18 |
Depreciation and amortization |  |  | (1,846 | ) |  |  | (155 | )
Prepaid expenses |  |  | (253 | ) |  |  | (175 | )
Right-of-use asset |  |  | (1,590 | ) |  |  | (697 | )
Operating lease liability |  |  | 1,672 |  |  |  | 732 |
Foreign carry-forwards |  |  | 1,102 |  |  |  | 438 |
Withholding taxes |  |  | (383 | ) |  |  | (769 | )
Other |  |  | 351 |  |  |  | 107 |
Deferred tax asset |  |  | 7,675 |  |  |  | 5,556 |
Less valuation allowance |  |  | (6,675 | ) |  |  | (3,561 | )
Net deferred tax asset |  | $ | 1,000 |  |  | $ | 1,995 |
|  | January 31, |
Balance sheet classification |  | 2024 |  |  | 2023 |
Long-term deferred tax asset |  | $ | 3,097 |  |  | $ | 2,764 |
Long-term deferred tax liability |  | $ | 2,097 |  |  | $ | 769 |
The benefit relating to capital loss, operating loss, and credit carryforwards included in the above table at January 31, 2024, consisted of:
|  | Gross Carryforward |  |  | Benefit Amount |  |  | Valuation Allowance |  |  | Expiration Beginning In |
State operating loss carryforwards |  | $ | 20,132 |  |  | $ | 1,256 |  |  | $ | (1,025 | ) |  | 2028 |
Foreign tax credit carryforwards |  |  |  |  |  |  | 4,548 |  |  |  | (4,548 | ) |  | 2025 |
Federal credit carryforwards |  |  |  |  |  |  | 167 |  |  |  | - |  |  | 2035 |
Mexico operating loss carryforwards |  | $ | 1,199 |  |  |  | 360 |  |  |  | (360 | ) |  | 2033 |
Chile operating loss carryforwards |  | $ | 2,414 |  |  |  | 652 |  |  |  | (652 | ) |  | Indefinite |
UK operating loss carryforwards |  | $ | 361 |  |  |  | 90 |  |  |  | (90 | ) |  | Indefinite |
Total |  |  |  |  |  | $ | 7,073 |  |  | $ | (6,675 | ) |  |  |
A significant portion of our net operating loss carryforwards were generated in the state of Alabama prior to the change in apportionment factor rules for that state in 2021 which moved the state to a single sales factor apportionment method. The impact of the state law change significantly reduced our apportionment factor in that state, making it unlikely that we will generate sufficient income allocated to that state in order to utilize the full amount of our net loss carryforwards prior to their expiration. Indefinite Reinvestment Assertion The Company generally considers all earnings generated outside of the U.S. to be permanently reinvested offshore, with the exception to countries where cash can be repatriated without withholding taxes, and in China in which the Company previously determined excess cash over what was required to fund operations and growth existed. During FY24, the Company repatriated $4.5 million and $7.0 million from Canada and China, respectively. The Company also identified an additional $3.8 million in excess cash in its Chinese operations for which it plans to repatriate in the future. A withholding tax liability has been established for the expected withholding taxes in the amount of $0.4 million as of the period ended January 31, 2024. The distribution from Canada received during FY24 was a result of the sale of real estate during the year. The sale resulted in after tax excess cash that the Company determined was not needed to fund local operations and repatriated back to the US in a one-time action. The Company still currently maintains a permanently reinvestment assertion on its future Canada operations. 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 FY20 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, 2024. The 2023 tax review will be performed before May 31, 2024 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 years ended January 31, 2024 and January 31, 2023 was $6.7 million and $3.6 million, respectively. OECD and Pillar Two In 2021 the Organization for Economic Cooperation and Development (OECD) announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-U.S. tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years. Although we expect increased tax compliance efforts as a result of new legislation, we do not expect Pillar Two to have a significant impact on our effective tax rate or our consolidated results of operations, financial position and cash flows.

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