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Note 16 - Income Taxes
 12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
16.
Income Taxes
 
 
On
December 22, 2017,
the Tax Cuts and Jobs Act (the
“2017
Tax Act”) was enacted. This legislation made significant changes to the U.S. tax law, including a reduction in the corporate tax rate from
35%
to
21%
starting in
2018.
 
In accordance with Staff Accounting Bulletin
No.
118,
which provides guidance on accounting for the tax effects of the
2017
Tax Act, the Company has recorded the impact on the consolidated financial statements. There were
no
significant changes in the provisional amount recorded in
2017
related to the finalization of the Company’s analysis. The other provisions of the Tax Act did
not
have a material impact on the
2017
consolidated financial statements.
 
 
Income Tax Expense
 
The components of the Company’s income before income taxes and its provision for (benefit from) income taxes consist of the following:
 
 
    Years ended December 31,
    2019   2018   2017
Income before income taxes                        
Domestic   $
38,299
     $
26,227
     $
48,446
  
Foreign    
(2,178
 )    
(3,020
 )    
(2,244
 )
    $
36,121
     $
23,207
     $
46,202
  
 
    Years ended December 31,
    2019   2018   2017
Provision for (benefit from) income taxes:                        
Current:                        
Federal   $
6,245
     $
4,783
     $
12,608
  
State    
1,884
      
1,644
      
2,737
  
Foreign    
202
      
405
      
31
  
 Total current    
8,331
      
6,832
      
15,376
  
Deferred:                        
Federal    
1,086
      
(992
 )    
(426
 )
State    
324
      
(152
 )    
(68
 )
Foreign    
(813
 )    
(1,203
 )    
(496
 )
Total deferred    
597
      
(2,347
 )    
(990
 )
Total provision   $
8,928
     $
4,485
     $
14,386
  
 
Deferred Tax Assets and Liabilities
 
Significant components of the Company’s deferred tax assets and liabilities consist of the following:
 
    December 31,
    2019   2018
Deferred tax assets:                
Net operating loss carry forward, foreign   $
1,812
     $
1,382
  
Stock-based compensation expense    
1,901
      
3,148
  
Foreign currency exchange    
346
      
363
  
Accrued expenses and other    
1,076
      
818
  
Inventory reserve    
1,187
      
1,500
  
Lease liability    
5,206
      
–
  
Deferred tax assets   $
11,528
     $
7,211
  
 
    December 31,
    2019   2018
Deferred tax liabilities:                
Acquisition-related Intangibles   $
(2,023
 )   $
(2,405
 )
Depreciation    
(8,665
 )    
(8,348
 )
Right of use asset    
(5,171
 )    
–
  
Deferred tax liabilities   $
(15,859
 )   $
(10,753
 )
                 
Net deferred tax liabilities   $
(4,331
 )   $
(3,542
 )
 
Tax Rate
 
The reconciliation between the U.S. federal statutory rate and the Company’s effective rate is summarized as follows:
 
    Years ended December 31,
    2019   2018   2017
Statutory federal income tax rate    
21.0
 %    
21.0
 %    
35.0
 %
State tax expense, net of federal benefit    
5.5
 %    
5.5
 %    
4.8
 %
Impact of rate change on deferred taxes    
0.0
 %    
0.0
 %    
(4.9
 %)
Permanent items, including nondeductible expenses    
(0.1
 %)    
(1.4
 %)    
0.1
 %
State investment tax credit    
(0.1
 %)    
(0.2
 %)    
(0.7
 %)
Federal, state and foreign research and development credits    
(1.4
 %)    
(3.4
 %)    
(1.4
 %)
Foreign rate differential    
(0.2
 %)    
(0.4
 %)    
0.5
 %
Domestic production deduction    
0.0
 %    
0.0
 %    
(2.8
 %)
Stock compensation    
0.6
 %    
(4.8
 %)    
(0.2
 %)
Non-deductible Section 162(m) compensation limitation    
0.3
 %    
4.3
 %    
0.7
 %
Foreign derived intangible income deduction    
(0.9
 %)    
(1.3
 %)    
0.0
 %
Effective income tax rate    
24.7
 %    
19.3
 %    
31.1
 %
 
As of
December 31, 2019,
the Company had net operating loss carryforwards for income tax purposes in Italy of
$7.5
million that do
not
expire.
 
Accounting for Uncertainty in Income Taxes
 
The Company had
no
unrecognized tax benefits for the years ended
December 31, 2019
and
2018,
respectively.
The Company does
not
anticipate experiencing any significant increases or decreases in its unrecognized tax benefits within the
twelve
months following
December 31, 2019.
 
In the normal course of business, Anika and its subsidiaries
may
be periodically examined by various taxing authorities. The Company files income tax returns in the U.S. federal jurisdiction, in certain U.S. states, and in Italy. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. The
2016
through
2018
tax years remain subject to examination by the IRS and other taxing authorities for U.S. federal and state tax purposes. The
2013
through
2018
tax years remain subject to examination by the appropriate governmental authorities for Italy.
 
Upon the settlement of certain stock-based awards (i.e., exercise, vesting, forfeiture, or cancellation), the actual tax deduction is compared with cumulative financial reporting compensation cost, and any excess tax deduction related to these awards is considered a windfall tax benefit. With the adoption of ASU
2016
-
09
in
2017,
the Company records windfall tax benefits to income tax expense. The Company follows the with-and-without approach for the direct effects of windfall/shortfall items and to determine the timing of the recognition of any related benefits. The Company recorded an immaterial windfall tax benefit in income tax expense in
2019
compared to
$1.5
million and
$0.4
million in
2018
and
2017,
respectively.