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INCOME TAXES | 12 Months Ended
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Oct. 31, 2023
INCOME TAXES |
INCOME TAXES | 6. INCOME TAXES We utilize the asset and liability method of accounting for income taxes. Under this method, the provision (benefit) for income taxes represents income taxes payable or refundable for the current year plus the change in deferred taxes during the year. ​ The Inflation Reduction Act of 2022 (the “Inflation Reduction Act” or “IRA”) was signed into law on August 16, 2022. The IRA provides investment in clean energy, promotes reductions in carbon emissions, and extends select Affordable Care Act premium reductions. The IRA is paid for through the implementation of a 15 percent corporate minimum tax on corporations with over $1 billion of financial statement income, budget increases for the Internal Revenue Service, an excise tax on stock repurchases, and changes to Medicare rules. The Company does not currently expect that the Inflation Reduction Act will have a material impact on its income taxes. ​ In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act, among other things, included tax provisions that we applied relating to refundable payroll tax credits, the deferral of employer’s social security payments, and modifications to net operating loss carryback provisions. We filed the net operating loss carryback claims during the fourth quarter of fiscal year 2021 and received $5.4 million in tax refunds during fiscal year 2022. On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “CAA”), which includes the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and the American Rescue Plan Act of 2021, was signed into law and provided further COVID-19 economic relief with an expansion of the employee retention credit. As a result, we recorded operating income of $2.9 million related to the employee retention credit during fiscal year 2021. We did not qualify for the employee retention credit in fiscal years 2022 or 2023. ​ In the fiscal years set forth below, the provision (benefit) for income taxes consisted of the following (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Year Ended October 31,
​ |  | 2023 |  | 2022 |  | 2021
Current: |  | ​ |  |  | ​ | ​ |  | ​ |
U.S. taxes | ​ | $ | (431) |  | $ | 1,092 | ​ | $ | 1,763
Foreign taxes | ​ |  | 2,775 | ​ |  | 3,191 | ​ |  | 1,706
​ | ​ |  | 2,344 | ​ |  | 4,283 | ​ |  | 3,469
Deferred: | ​ |  | ​ | ​ |  | ​ | ​ |  | ​
U.S. taxes | ​ |  | 104 | ​ |  | (933) | ​ |  | 66
Foreign taxes | ​ |  | (83) | ​ |  | 302 | ​ |  | (178)
​ | ​ |  | 21 | ​ |  | (631) | ​ |  | (112)
​ | ​ | $ | 2,365 |  | $ | 3,652 | ​ | $ | 3,357
​ The components of income (loss) before taxes are (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Year Ended October 31,
​ |  | 2023 |  | 2022 |  | 2021
Income (loss) before income taxes: |  | ​ |  |  | ​ |  |  | ​ |
Domestic | ​ | $ | (3,259) |  | $ | (232) |  | $ | 4,340
Foreign | ​ |  | 10,013 |  |  | 12,110 |  |  | 5,781
​ | ​ | $ | 6,754 |  | $ | 11,878 |  | $ | 10,121
​ A comparison of income tax expense at the U.S. statutory rate to our effective tax rate is as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Year Ended October 31, |
​ |  | 2023 |  | 2022 |  | 2021 |
​ | ​ |  | ​ | ​ |  | ​ | ​ |  |  |
U.S. statutory rate | ​ |  | 21 | % |  | 21 | % |  | 21 | %
Effect of tax rate of international jurisdictions different than U.S. statutory rates | ​ |  | 6 | % |  | 4 | % |  | 4 | %
Valuation allowance | ​ |  | 2 | % |  | 3 | % |  | — | %
State taxes | ​ |  | (1) | % |  | 1 | % |  | 1 | %
Tax credits | ​ |  | — | % |  | 1 | % |  | — | %
U.S. benefit of foreign intangible income | ​ | ​ | — | % | ​ | (3) | % | ​ | (1) | %
Impact of CARES act | ​ | ​ | — | % | ​ | — | % | ​ | 5 | %
Stock-based compensation | ​ | ​ | 6 | % | ​ | 4 | % | ​ | 4 | %
Other | ​ |  | 1 | % |  | — | % |  | (1) | %
Effective tax rate | ​ |  | 35 | % |  | 31 | % |  | 33 | %
​ The Tax Reform Act enacted on December 22, 2017, made comprehensive changes to U.S. federal income tax laws by moving from a global to a modified territorial tax regime. As a result, cash repatriated to the U.S. is generally no longer subject to U.S federal income tax. As of October 31, 2023, the undistributed earnings of our foreign subsidiaries are expected to be permanently reinvested and retained for continuing operations. Accordingly, we did not accrue any withholding taxes on the undistributed earnings of our foreign subsidiaries, consistent with the position adopted on January 1, 2018. ​ ​ Deferred income taxes are determined based on the difference between the amounts used for financial reporting purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Net deferred tax assets and liabilities are classified as non-current in the consolidated financial statements. ​ As of October 31, 2023, we had deferred tax assets established for accumulated net operating loss carryforwards of $2.2 million, primarily related to state and foreign jurisdictions. We also have deferred tax assets for tax credits of $0.7 million. We established a valuation allowance against some of these carryforwards due to the uncertainty of their full realization. As of each of October 31, 2023, and 2022, the balance of this valuation allowance was $1.8 million. ​ Significant components of our deferred tax assets and liabilities at October 31, 2023 and 2022 are as follows (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | October 31,
​ |  | 2023 |  | 2022
Deferred Tax Assets: |  | ​ |  |  | ​ |
Accrued inventory reserves | ​ | $ | 1,580 |  | $ | 1,329
Accrued warranty expenses | ​ |  | 241 | ​ |  | 270
Compensation related expenses | ​ |  | 2,222 | ​ |  | 2,495
Net derivative gain | ​ | ​ | 683 | ​ | ​ | 98
Unrealized exchange gain | ​ |  | — | ​ |  | 117
Other accrued expenses | ​ |  | 344 | ​ |  | 318
Net operating loss carryforwards | ​ |  | 2,249 | ​ |  | 1,449
Other credit carryforwards | ​ |  | 712 | ​ |  | 703
Operating lease liabilities | ​ | ​ | 2,818 | ​ | ​ | 2,023
Goodwill and intangibles | ​ | ​ | 798 | ​ | ​ | 831
Other | ​ |  | 131 | ​ |  | 171
​ | ​ |  | 11,778 | ​ |  | 9,804
Less: Valuation allowance – net operating loss and other credit carryforwards | ​ |  | (1,810) | ​ |  | (1,754)
Deferred tax assets | ​ |  | 9,968 | ​ |  | 8,050
​ | ​ |  | ​ | ​ |  | ​
Deferred Tax Liabilities: | ​ |  | ​ | ​ |  | ​
Unrealized exchange loss | ​ |  | (159) | ​ |  | —
Property and equipment and capitalized software development costs | ​ |  | (1,915) | ​ |  | (2,394)
Operating lease - right of use assets | ​ | ​ | (2,731) | ​ | ​ | (1,960)
Other | ​ |  | (497) | ​ |  | (321)
Net deferred tax assets | ​ | $ | 4,666 |  | $ | 3,375
​ As of October 31, 2023, we had net operating loss carryforwards for international and U.S. income tax purposes of $14.3 million, of which $4.4 million will expire within 5 years beginning in fiscal 2024 and $7.6 million are U.S. and state net operating losses which will expire between 5 and 20 years. The remaining $2.3 million in net operating losses will be carried forward indefinitely based on current international tax laws. We also had tax credits of $0.7 million which will expire between years 2024 and 2033. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding the related accrual for interest or penalties, is as follows (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2023 |  | 2022 |  | 2021
Balance, beginning of year | ​ | $ | 138 |  | $ | 167 | ​ | $ | 168
Additions based on tax positions related to the current year | ​ |  | — | ​ |  | 21 | ​ |  | 74
Additions (reductions) related to prior year tax positions | ​ |  | — | ​ |  | — | ​ |  | —
Reductions due to statute expiration | ​ |  | — | ​ |  | (50) | ​ |  | (75)
Balance, end of year | ​ | $ | 138 |  | $ | 138 | ​ | $ | 167
​ The entire balance of the unrecognized tax benefits and related interest on October 31, 2023, if recognized, could affect the effective tax rate in future periods. ​ We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax provision. As of October 31, 2023, the amount of interest accrued, reported in other liabilities, was approximately $44,000 which did not include the federal tax benefit of interest deductions. The statute of limitations with respect to unrecognized tax benefits will expire between August 2024 and August 2025. ​ We file U.S. federal and state income tax returns, as well as tax returns in applicable foreign jurisdictions. Currently, our subsidiary in Taiwan is under income tax audit for fiscal years 2021 through 2022. ​ A summary of open tax years by major jurisdiction is presented below: ​
​ | ​ | ​
United States federal | ​ | Fiscal 2014 through the current period
United Kingdom | ​ | Fiscal 2017 through the current period
Taiwan | ​ | Fiscal 2018 through the current period
Germany¹ | ​ | Fiscal 2022 through the current period
¹ | Includes federal as well as state, provincial or similar local jurisdictions, as applicable.

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