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Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

5. Income Taxes

The Company accounts for income taxes in accordance with the provisions of ASC 740, "Income Taxes" ("ASC 740") on a tax jurisdictional basis. The Company and its U.S. subsidiaries file U.S. tax returns and the Company’s foreign subsidiaries file tax returns in Mexico and in Canada. For financial reporting purposes, net income before income taxes includes the following components:

​

​	​	​	​	​	​	​
​	​	Years Ended December 31,
​	​	2022		​	2021
​	​	(in thousands)
U.S. Operations	​	$	(18,317)	​	$	(6,369)
Foreign Operations (1)	​	​	20,555	​	​	24,012
Total income before income taxes	​	$	2,238	​	$	17,643

​

(1) Foreign operations are predominantly in Mexico, as activities in Canada are minimal.

The Company's income tax expense consists of the following:

​

​	​	​	​	​	​	​
​	​	Years ended December 31,
​	​	2022		​	2021
​	​	(in thousands)
Current taxes:	​	​
State	​	$	(254)	​	$	305
Foreign	​	​	12,358	​	​	11,426
Total current taxes	​	$	12,104	​	$	11,731
​	​	​	​	​	​	​
Deferred taxes:	​	​	​	​	​	​
Federal	​	$	(895)	​	$	-
State	​	​	25	​	​	-
Foreign	​	​	(2,675)	​	​	(2,116)
Total deferred taxes	​	$	(3,545)	​	$	(2,116)
Total income tax provision	​	$	8,559	​	$	9,615

​

The provision for income taxes for the years ended December 31, 2022 and 2021, differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to pre-tax income from operations as a result of the following differences:

​

​	​	​	​	​	​	​
​	​	For the year ended December 31,
​	​	2022		​	2021
​	​	(in thousands)
Tax at statutory rates	​	$	470	​	$	3,705
Foreign rate differential	​	​	1,867	​	​	2,095
Changes in valuation allowance	​	​	(5,115)	​	​	(975)
Tax losses subject to limitation	​	​	8,306	​	​	-
Mexico mining tax	​	​	2,168	​	​	1,590
Foreign exchange	​	​	311	​	​	535
Stock option expiration	​	​	519	​	​	2,471
Mexico withholding tax	​	​	1,328	​	​	679
Deduction for inflation in Mexico	​	​	(1,083)	​	​	(981)
U.S. state income tax	​	​	(786)	​	​	514
Other	​	​	574	​	​	(18)
Tax provision	​	$	8,559	​	$	9,615

​

The Company has completed an estimate of Internal Revenue Code section 382 (“382”) net operating loss limitations related to ownership changes in connection with shares issued for the Back Forty Project acquisition and has written-off net operating losses of $24.8 million of federal and $35.6 million of Michigan, that would never become available due to the 382 loss limitations and the expiring loss carryforward periods. Approximately $51.1 million federal, and $16.6 million of Michigan net operating losses are subject to a 382 limitation, and the annual limitation going forward is approximately $1.3 million.

The following table sets forth deferred tax assets and liabilities:

​

​	​	​	​	​	​	​	​
​	​	As of December 31,					​
​	​	2022			2021
​	​	​	(in thousands)				​
Non-current deferred tax assets:	​	​	​	​	​	​	​
Tax loss carryforward	​	$	25,626	​	$	29,496	​
Property, plant, and mine development	​	​	1,429	​	​	572	​
Share-based compensation	​	​	511	​	​	1,068	​
Foreign tax credits	​	​	4,089	​	​	4,089	​
Inventory	​	​	45	​	​	142	​
Foreign Mining Tax	​	​	1,106	​	​	793	​
Accrued Expenses	​	​	5,606	​	​	3,363	​
Gold and silver stream agreements liability	​	​	2,144	​	​	1,681	​
Employee profit sharing obligation	​	​	663	​	​	566	​
Zinc Derivatives	​	​	-	​	​	608	​
Other	​	​	1,344	​	​	472	​
Total deferred tax assets	​	$	42,563	​	$	42,850	​
Valuation allowance	​	​	(31,818)	​	​	(36,933)	​
Deferred tax assets after valuation allowance	​	$	10,745	​	$	5,917	​
Deferred tax liability – Property, plant and mine development	​	​	(17,724)	​	​	(16,722)	​
Deferred tax liability – Other	​	​	(2,245)	​	​	(2,321)	​
Total deferred tax liabilities	​	$	(19,969)	​	$	(19,043)	​
Net deferred tax liability	​	$	(9,224)	​	$	(13,126)	​

​

In accordance with ASC 740, the Company presents deferred tax assets net of its deferred tax liabilities on its Consolidated Balance Sheets. The net deferred tax liability of $9.2 million as of December 31, 2022 is primarily related to $14.6 million deferred tax liability related to Aquila, offset by $5.9 million deferred tax asset related to DDGM.

The Company evaluates the evidence available to determine whether a valuation allowance is required on deferred tax assets. As of December 31, 2022, the Company determined that a valuation allowance of $31.8 million was necessary due to the uncertain utilization of specific deferred tax assets, primarily net operating loss carryforwards, in both U.S. and Canada; $21.8 million of the valuation allowance is related to Aquila. As of December 31, 2021, the Company determined that a valuation allowance of $36.9 million was necessary due to the uncertain utilization of specific deferred tax assets, primarily net operating loss carryforwards, in both U.S. and Canada; $27.5 million of the valuation allowance is related to Aquila. The net change in the Company’s valuation allowance was a decrease of $5.1 million for the year ended December 31, 2022. The decrease in the valuation allowance is primarily due to the tax effected write-off related to the 382 limitation discussed above.

At December 31, 2022, the Company has U.S. federal loss carryforwards of $73.8 million, of which $47.2 million have no expiration date, and $26.6 million that expire at various dates between 2027 and 2037; U.S. Foreign Tax Credits of $4.1 million that expire at various dates between 2023 and 2026; federal capital loss carryforwards of $0.2 million that expire at various dates between 2023 and 2027; state of Colorado tax loss carryforwards of $47.3 million, of which $30.3 million expire at various dates between 2023 and 2037 and $17.0 million that have no expiration; state of Michigan tax loss carryforwards of $22.3 million expiring at various dates between 2023 and 2032; and Canadian tax loss carryforwards of $37.9 million that expire between 2026 and 2042.

Mexico Mining Taxation

Mining entities in Mexico are subject to two mining duties, in addition to the 30% Mexico corporate income tax: (i) a “special” mining duty of 7.5% of taxable income as defined under Mexican tax law (also referred to as “mining royalty tax”) on extraction activities performed by concession holders, and (ii) the “extraordinary” mining duty of 0.5% on gross revenue from the sale of gold, silver, and platinum. The mining royalty tax is generally applicable to earnings before income tax, depreciation, depletion, amortization, and interest. In calculating the mining royalty tax, there are no deductions related to depreciable costs from operational fixed assets, but prospecting and exploration expenses are

amortized at 10% rate in a 10 year straight line. Both duties are tax deductible for income tax purposes. As a result, our effective tax rate applicable to the Company’s Mexican operations is substantially higher than Mexico’s statutory rate.

The Company periodically transfers funds from its Mexican wholly-owned subsidiary to the U.S. in the form of dividends. Mexico requires a 10% withholding tax on dividends on all post-2013 earnings. The Company began distributing post-2013 earnings from Mexico in 2018. According to the existing U.S. – Mexico tax treaty, the dividend withholding tax between these countries is limited to 5% if certain requirements are met. The Company determined that it had met such requirements and paid a 5% withholding tax on dividends received from Mexico, and as a result, paid $1.3 million and $0.5 million for years ending December 31, 2022 and 2021, respectively. 

Other Tax Disclosures

The U.S. Treasury Department issued final regulations in July 2020 concerning global intangible low-taxed income, commonly referred to as GILTI tax, which was introduced by the Tax Act of 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The final tax regulations allow income to be excluded from GILTI tax that are subject to an effective tax rate higher than 90% of the U.S. tax rate. The Company determined that it is not subject to GILTI tax due to this high tax exception rule.

As of both December 31, 2022 and 2021, the Company believes that it has no uncertain tax positions that result in unrecognized tax benefits. If the Company were to determine there was an unrecognized tax benefit, the Company would recognize the liability and related interest and penalties within income tax expense.

X

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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://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 21
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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-Section S99
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Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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