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Note 16 - Income Taxes
 12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

16. Income Taxes 

 

Income Tax Expense

 

The components of the Company’s income (loss) before income taxes and its provision for (benefit from) income taxes consist of the following:

 

  

Years ended December 31,

 
  

2022

  

2021

  

2020

 

(Loss) income before income taxes

            

Domestic

 $(19,080) $(2,529

)

 $(25,722)

Foreign

  334   4,956   (2,902

)

  $(18,746) $2,427  $(28,624)

 

  

Years ended December 31,

 
  

2022

  

2021

  

2020

 

Provision for (benefit from) income taxes:

            

Current:

            

Federal

 $1,005  $494  $357 

State

  285   (635

)

  (1,970)

Foreign

  96   167   49 

Total current

  1,386   26   (1,564)

Deferred:

            

Federal

  (3,243)  (553

)

  (1,980)

State

  (1,256)  (426

)

  (1,070)

Foreign

  (774)  (754

)

  (28)

Total deferred

  (5,273)  (1,733

)

  (3,078)

Total benefit from income taxes

 $(3,887) $(1,707

)

 $(4,642)

 

Deferred Tax Assets and Liabilities

 

Significant components of the Company’s deferred tax assets and liabilities consist of the following:

 

  

As of December 31,

 
  

2022

  

2021

 

Deferred tax assets:

        

Lease liability

 $7,468  $4,684 

Capitalized research expenditures

  5,451   - 

Stock-based compensation expense

  2,795   2,782 

Inventory reserves

  2,763   2,453 

Compensation accrual

  1,635   1,236 

Net operating loss carry forwards

  1,551   2,822 

Tax credits

  741   3,022 

Accrued expenses

  519   491 

Foreign currency exchange

  221   282 

Deferred tax assets

 $23,144  $17,772 

 

  

As of December 31,

 
  

2022

  

2021

 

Deferred tax liabilities:

        

Acquisition-related intangible asset

 $(12,075) $(14,770

)

Depreciation

  (8,804)  (8,509

)

Right of use asset

  (7,252)  (4,650

)

Deferred tax liabilities

 $(28,131) $(27,929

)

         

Net deferred tax liabilities

 $(4,987) $(10,157

)

 

As of December 31, 2022, the Company had no Federal net operating loss (“NOL”) carryforwards and state net NOL carryforwards of $3.1 million that will begin to expire in 2026. The Company also had NOL carryforwards in Italy of $6.1 million that do not expire but are limited to 80% of taxable income. As of December 31, 2022, the Company had federal and state research and development tax credit carryforwards of $0.4 million and $0.5 million, respectively, that will begin expiring in 2023.

 

The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and experimental (“R&D”) expenditures for tax years beginning after December 31, 2021. This rule became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of R&D costs of $23.4 million. The Company will amortize these costs for tax purposes over 5 years if the R&D was performed in the U.S. and over 15 years if the R&D was performed outside the U.S.

 

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. Based upon future reversals of existing taxable temporary differences, the Company believes it is more likely than not that it will realize its domestic deferred tax assets. Based upon future reversals of existing taxable temporary differences and projected future taxable income, the Company believes it is more likely than not it will realize its foreign deferred tax assets.

 

During the year ended December 31, 2021, the Company released the valuation allowance recorded related to the net deferred tax assets in Italy in the amount of $0.9 million. 

 

Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $0.5 million at December 31, 2022. The Company expects to be able to take a 100% dividend received deduction to offset any U.S. federal income tax liability on the undistributed earnings. Determination of the amount of unrecognized state and local deferred income tax liability is not practicable due to the complexities associated with its hypothetical calculation.

 

Effective 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,

 
  

2022

  

2021

  

2020

 

Statutory federal income tax rate

  21.0%  21.0

%

  21.0

%

State tax expense, net of federal benefit

  1.4%  (3.2

%)

  1.5

%

Stock compensation

  (4.7%)  22.3

%

  (2.2

%)

Section 162(m) limitation

  (8.2%)  8.7

%

  - 

Goodwill impairment

  -   -

 

  (16.8

%)

Change in fair value of contingent consideration

  -   (36.7

%)

  6.7

%

Change in tax rates and state apportionment

  1.2%  (29.8

%)

  4.9

%

Federal, state and foreign tax credits

  5.1%  (28.4

%)

  2.2

%

Valuation allowance

  -   (35.3

%)

  (3.0

%)

Return to provision adjustments

  5.0%  -

 

  -

 

Other permanent items

  (0.1

)%

  11.0

%

  1.9

%

Effective income tax rate

  20.7%  (70.4

%)

  16.2

%

 

Accounting for Uncertainty in Income Taxes

 

The Company had no unrecognized tax benefits for the years ended December 31, 2022 and 2021, respectively. The Company does not anticipate experiencing any significant increase or decrease in its unrecognized tax benefits within the twelve months following December 31, 2022.

 

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 United States on a federal basis, in certain U.S. states, and in certain foreign jurisdictions. 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. With a few exceptions, the Company is no longer subject to income tax examinations for years prior to 2019.