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Note 12 - Income Taxes and Other Taxes Payable
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Text Block]
Note 12 – Income Taxes and Other Taxes Payable

Taxes payable consisted of the following at December 31, 2012 and 2011:

     
2012
     
2011
 
Income tax payables
 
$
255,793
   
$
38,391
 
Other taxes payable
   
16,366
     
160,593
 
                 
Total tax payable - current
 
$
272,159
   
$
198,984
 
                 
Total income tax payable - noncurrent
 
$
4,608,592
   
$
4,016,266
 

Other taxes payable includes VAT, city construction, sales tax and stamp tax.

The components of income before income taxes consisted of the following for the years ended December 31, 2012 and 2011:
   
2012
   
2011
 
             
Income (Loss) subject to domestic income taxes only
 
$
491,393
   
$
(139,515)
 
Income subject to foreign income taxes only
   
6,014,144
     
6,965,191
 
                 
Total
 
$
6,505,537
   
$
6,825,676
 

The Company’s subsidiaries incorporated in the PRC are subject to enterprise income taxes. The provision for income taxes consisted of the following for the years ended December 31, 2012 and 2011:

   
2012
   
2011
 
Current
           
Federal
 
$
363,780
   
$
707,533
 
State
   
35,187
     
800
 
PRC
   
509,623
     
924,653
 
Total current
   
908,590
     
1,632,986
 
Deferred
               
Federal
   
143,431
     
(151,937)
 
State
   
26,021
     
(26,072)
 
PRC
   
(6,388
) 
   
5,534
 
Total deferred
   
163,064
     
(172,475
)
Total
 
$
1,071,654
   
$
1,460,511
 

The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory rate on income before income taxes for the years ended December 31, 2012 and 2011:

   
2012
   
2011
 
             
Tax at federal statutory rate
 
$
2,211,861
   
$
2,320,730
 
Domestic permanent differences
   
8,666
     
(104,501
)
State tax
   
61,280
     
(25,272
)
Foreign rate differential
   
(541,273
)
   
(626,867
)
Foreign permanent differences
   
7,395
     
(75,612
)
ASC 740-10 uncertain tax position
   
582,672
     
1,508,213
 
Tax exemption
   
(1,397,866
)
   
(1,504,950
)
Other
   
138,919
     
(31,230
)
Total
 
$
1,071,654
   
$
1,460,511
 


The following presents the aggregate dollar and per share effects of the Company’s tax exemption for the years ended December 31, 2012 and 2011:

   
2012
   
2011
 
             
Aggregate dollar effect of tax exemption
 
$
1,397,866
   
$
1,504,950
 
Basic EPS impact
 
$
0.07
   
$
0.10
 

Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are comprised of the following for the years ended December 31, 2012 and 2011:

   
2012
   
2011
 
             
Current deferred tax assets
           
Accrued liabilities
 
$
157,424
   
$
156,974
 
                 
Noncurrent deferred tax assets:
               
Federal & CA state amortization
 
$
8,852
   
$
2,213
 
Federal & CA state NOL
   
-
     
34,849
 
Intercompany payable
   
-
     
131,521
 
Land use rights
   
7,034
     
7,016
 
PRC fixed asset and amortization
   
643
     
962
 
PRC NOL
   
5,045
     
8,129
 
                 
Noncurrent deferred tax liabilities:
               
Federal & CA state depreciation
   
(35,237
)
   
(26,425
)
Purchase accounting
   
(17,000
)
   
(17,000
)
Prepaid expenses
   
(320)
     
(5,672
)
PRC depreciation on building
   
(9,342
)
   
(9,319
)
                 
Net noncurrent deferred tax assets (liabilities) before valuation allowance
   
(40,325
) 
   
126,274
 
Less: valuation allowance
   
(5,045
)
   
(8,130
)
Non-current deferred tax assets (liabilities), net
 
$
(45,370
) 
 
$
118,144
 

The Company has recorded a partial valuation allowance against its PRC deferred tax assets for the year ended December 31, 2012 and 2011. In accordance with ASC 740 Accounting for Income Taxes, based on all available evidence, including the Company’s historical results and the forecast of its future income, it is more likely than not that substantially all of its PRC entities will be able to realize the Company’s deferred tax assets.

Nova Lifestyle, Inc. and Diamond Bar Outdoors, Inc. are subject to U.S. federal and state income taxes.  For U.S. federal income tax purposes, the Company has net operating loss (“NOL”) carryforwards of approximately $0 and $87,000, at December 31, 2012 and 2011, respectively. For U.S. California state income tax purposes, the Company has NOL carryforwards of approximately $0 and $87,000, at December 31, 2012 and 2011, respectively. The NOL carryforwards will expire after 20 years beginning from the year it occurred if not utilized. The Company does not have any NOL carryforwards for PRC enterprise income tax purposes, at December 31, 2012 and 2011 respectively.

Nova Dongguan is subject to a 25% PRC corporate tax rate starting from 2009. Nova Macao is an income tax-exempt entity incorporated and domiciled in Macao. Nova Museum is subject to a 25% corporate income tax in 2011, its inception year, but allowed to apply for tax-exempt status in 2012, the second year following its incorporation.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $13.7 million and $8.7 million as of December 31, 2012 and 2011, respectively. Those earnings are considered to be permanently reinvested and, accordingly, no deferred tax expense is recorded for U.S. federal and state income tax or applicable withholding taxes.

Nova Furniture was incorporated in the BVI and there is no income tax for a company domiciled in the BVI. Accordingly, the Company’s consolidated financial statements do not present any income tax provisions related to the BVI tax jurisdiction where Nova Furniture is domiciled.

On August 31, 2011, Nova LifeStyle acquired all the outstanding capital stock of Diamond Bar. Both Nova LifeStyle and Diamond Bar are subject to U.S. corporate income tax.