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Income Taxes
 9 Months Ended
Sep. 30, 2023
Income Taxes  
Income Taxes

Note 9 – Income Taxes

Our income tax expense is impacted by the mix of our domestic and foreign pre-tax earnings and losses. Our effective income tax rates are generally higher than the blended statutory tax rates of the jurisdictions in which we operate due to having incurred income tax expense on taxable income in certain jurisdictions, while not being able to benefit from losses in other jurisdictions for which our net operating loss carryovers (“NOLs”) are subject to valuation allowance. Income tax expense as a percentage of income/loss before income taxes was 89.3% for the three months ended September 30, 2023 versus 64.7% for the comparable quarter in the prior year. Income tax expense as a percentage of income before income taxes was 78.0% for the nine months ended September 30, 2023 versus 31.8% for the first nine months of the prior year.

We experienced an ownership change under IRC Section 382 in 2010. In general, a Section 382 ownership change occurs if there is a cumulative change in our ownership by “5% shareholders” (as defined in the Internal Revenue Code of 1986, as amended) that exceeds 50 percentage points over a rolling three-year period. An ownership change generally affects the rate at which NOLs and potential other deferred tax assets are permitted to offset future taxable income. Certain state jurisdictions within which we operate contain similar provisions and limitations. As of September 30, 2023, all of the remaining federal and state NOLs are subject to annual limitations due to the 2010 ownership change.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. We analyzed our need to record a valuation allowance against our otherwise recognizable net deferred tax assets in the federal, state and foreign jurisdictions, and we determined that a valuation allowance on federal and state deferred tax assets was necessary at both September 30, 2023 and December 31, 2022, while no valuation allowance on foreign deferred tax assets was necessary at both September 30, 2023 and December 31, 2022. The amount of deferred tax assets considered realizable could be adjusted in future periods if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for future profitability.

The Internal Revenue Code includes a provision, referred to as Global Intangible Low-Taxed Income (“GILTI”), which provides for a 10.5% tax on certain income of controlled foreign corporations. We have elected to account for GILTI as a period cost if and when occurred, rather than recognizing deferred taxes for basis differences expected to reverse.

Of our $5.2 million cash balance at September 30, 2023, $1.6 million was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we have several methods to repatriate the funds without significant tax effects, including repayment of intercompany loans or distributions of previously taxed income. Other distributions may require us to incur U.S. or foreign taxes to repatriate these funds.