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Income Taxes | 12 Months Ended
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Jan. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Note 17—Income Taxes The components of income (loss) before income taxes are as follows:
|  | 2023 |  |  | 2022 |  |  | 2021 |
(In thousands) |  |  |  |  |  |  |  |  |
Domestic |  | $ | 1,773 |  |  | $ | 5,046 |  |  | $ | (1,193 | )
Foreign |  |  | 1,637 |  |  |  | 1,988 |  |  |  | 3,372 |
|  | $ | 3,410 |  |  | $ | 7,034 |  |  | $ | 2,179 |
The components of the provision for income taxes are as follows:
|  | 2023 |  |  | 2022 |  |  | 2021 |
(In thousands) |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 902 |  |  | $ | (183 | ) |  | $ | 1,272 |
State |  |  | 313 |  |  |  | 76 |  |  |  | 224 |
Foreign |  |  | 870 |  |  |  | 501 |  |  |  | 420 |
|  |  | 2,085 |  |  |  | 394 |  |  |  | 1,916 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (1,053 | ) |  | $ | 180 |  |  | $ | (910 | )
State |  |  | (315 | ) |  |  | 177 |  |  |  | (189 | )
Foreign |  |  | 32 |  |  |  | (146 | ) |  |  | 78 |
|  |  | (1,336 | ) |  |  | 211 |  |  |  | (1,021 | )
|  | $ | 749 |  |  | $ | 605 |  |  | $ | 895 |
Total income tax provision differs from the expected tax provision as a result of the following:
|  | 2023 |  |  | 2022 |  |  | 2021 |
(In thousands) |  |  |  |  |  |  |  |  |
Income Tax Provision at Statutory Rate |  | $ | 716 |  |  | $ | 1,477 |  |  | $ | 458 |
Change in Valuation Allowance |  |  | 182 |  |  |  | 57 |  |  |  | (81 | )
Foreign Rate Differential |  |  | 157 |  |  |  | 61 |  |  |  | 197 |
Change in Reserves Related to ASC 740 Liability |  |  | 93 |  |  |  | (245 | ) |  |  | (10 | )
Denmark Statutory Audit |  |  | — |  |  |  | — |  |  |  | 341 |
Meals and Entertainment |  |  | — |  |  |  | 9 |  |  |  | 11 |
Canada Withholding Taxes |  |  | — |  |  |  | — |  |  |  | 62 |
Global Intangible Low Taxed Income |  |  | — |  |  |  | — |  |  |  | 14 |
Foreign Derived Intangible Income |  |  | (180 | ) |  |  | (55 | ) |  |  | (150 | )
R&D Credits |  |  | (160 | ) |  |  | (180 | ) |  |  | (157 | )
Share Based Compensation |  |  | (52 | ) |  |  | (95 | ) |  |  | 171 |
Return to Provision Adjustment |  |  | (22 | ) |  |  | 368 |  |  |  | (2 | )
State Taxes, Net of Federal Tax Effect |  |  | (2 | ) |  |  | 143 |  |  |  | 28 |
PPP Loan Forgiveness |  |  | — |  |  |  | (937 | ) |  |  | — |
Other |  |  | 17 |  |  |  | 2 |  |  |  | 13 |
|  | $ | 749 |  |  | $ | 605 |  |  | $ | 895 |
Our effective tax rate for fiscal 2023 was 22.0% compared to 8.6% in fiscal 2022 and 41.1% in fiscal 2021. The increase in the effective tax rate in fiscal 2023 from fiscal 2022 is primarily related to the absence of the PPP loan forgiveness which is tax-exempt income that was a one-time item that reduced the rate in fiscal 2022. Specific items increasing the effective tax rate in fiscal 2023 include the change in reserves related to ASC 740 liability and the increase in the valuation allowance recorded on China net operating losses. This increase was offset by state taxes, return to provision adjustments, share-based compensation, R&D tax credits, and foreign derived intangible income (“FDII”) deduction. The decrease in the effective tax rate in fiscal 2022 from fiscal 2021 is primarily related to the one-time impact of the PPP loan forgiveness tax-exempt income. Specific items decreasing the effective tax rate include PPP loan forgiveness tax-exempt income, R&D tax credits, foreign derived intangible income (“FDII”) deduction and change in reserves related to ASC 740 liabilities. This decrease was offset by state taxes, return to provision adjustments, and taxes on foreign earnings. The components of deferred income tax expense arise from various temporary differences and relate to items included in the statement of income. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities are as follows:
|  | January 31, |
(In thousands) |  | 2023 |  |  | 2022 |
Deferred Tax Assets: |  |  |  |  |  |  |  |
Inventory |  | $ | 2,710 |  |  | $ | 2,159 |
Honeywell Royalty Liability |  |  | 3,008 |  |  |  | 2,655 |
State R&D Credits |  |  | 1,851 |  |  |  | 1,925 |
Share-Based Compensation |  |  | 620 |  |  |  | 593 |
Bad Debt |  |  | 180 |  |  |  | 213 |
Warranty Reserve |  |  | 258 |  |  |  | 198 |
Compensation Accrual |  |  | 248 |  |  |  | 322 |
Net Operating Loss |  |  | 135 |  |  |  | 152 |
ASU 842 Adjustment – Lease Liability |  |  | 53 |  |  |  | 93 |
Unrecognized State Tax Benefits |  |  | 58 |  |  |  | 64 |
Foreign Tax Credit |  |  | 154 |  |  |  | 154 |
Deferred Service Contract Revenue |  |  | 90 |  |  |  | 61 |
Section 174 Capitalization* |  |  | 1,175 |  |  |  | — |
Other |  |  | 281 |  |  |  | 224 |
|  | 10,821 |  |  | 8,813 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |
Accumulated Tax Depreciation in Excess of Book Depreciation |  |  | 1,037 |  |  |  | 455 |
Intangibles |  |  | 694 |  |  |  | 767 |
ASU 842 Adjustment – Lease Liability |  |  | 50 |  |  |  | 90 |
Other |  |  | 180 |  |  |  | 318 |
|  | 1,961 |  |  | 1,630 |
Subtotal |  |  | 8,860 |  |  |  | 7,183 |
Valuation Allowance |  |  | (2,120 | ) |  |  | (1,778 | )
Net Deferred Tax Assets |  | $ | 6,740 |  |  | $ | 5,405 |
* | Beginning in fiscal 2023, changes to Section 174 of the Internal Revenue Code made by the Tax Cuts and Jobs Act of 2017 no longer permit an immediate deduction for research and development expenditures in the tax year that such costs are incurred. These costs are capitalized resulting in an increase in deferred tax assets of $1.2 million.
Deferred taxes are reflected in the consolidated balance sheet as follows:
|  | January 31, |
|  | 2023 |  |  | 2022 |
Deferred Tax Assets |  |  | 6,907 |  |  |  | 5,591 |
Deferred Tax Liabilities |  |  | (167 | ) |  |  | (186 | )
Total Net Deferred Tax Assets |  | $ | 6,740 |  |  | $ | 5,405 |
The valuation allowances of $2.1 million at January 31, 2023 and $1.8 million at January 31, 2022, relate to Rhode Island research and development tax credit carryforwards, foreign tax credit carryforwards, and China’s net operating losses that are expected to expire unutilized. At January 31, 2023, we had net operating loss carryforwards of $0.1 million in China, which expire in 2024 through 2028. We have net operating loss carryforwards of less than $0.1 million in France, which can be carried forward indefinitely. We expect to utilize the net operating loss carryforwards in France before in future tax periods. At January 31, 2023, we had state research credit carryforwards of approximately $1.9 million which expire in 2023 through 2030. Additionally, we had $0.2 million of foreign tax credits. We maintain a full valuation allowance against these credits as we expect these credits to expire unused. We believe that it is reasonably possible that some unrecognized tax benefits, accrued interest and penalties could decrease income tax expense in the next year due to either the review of previously filed tax returns or the expiration of certain statutes of limitation. The changes in the balances of unrecognized tax benefits, excluding interest and penalties are as follows:
|  | 2023 |  |  | 2022 |  |  | 2021 |
(In thousands) |  |  |  |  |  |  |  |  |
Balance, beginning of the year |  | $ | 303 |  |  | $ | 384 |  |  | $ | 362 |
Increases in prior period tax positions |  |  | 24 |  |  |  | 63 |  |  |  | 59 |
Increases in current period tax positions |  |  | 136 |  |  |  | 67 |  |  |  | 5 |
Reductions related to lapse of statutes of limitations |  |  | (49 | ) |  |  | (211 | ) |  |  | (42 | )
Balance, end of the year |  | $ | 414 |  |  | $ | 303 |  |  | $ | 384 |
During fiscal 2023 and 2022, we released $49,000 and $211,000, respectively, of uncertain tax positions including accrued interest and penalties relating to a change in various unrecognized tax positions. The Company has accrued potential interest and penalties of $77,000 included in income taxes payable in the accompanying consolidated balance sheet at the end of January 31, 2023. The Company and its subsidiaries file income tax returns in U.S. federal jurisdictions, various state jurisdictions, and various foreign jurisdictions. In fiscal 2023, we released $27,000 related to a federal tax exposure for the fiscal 2019 tax year and $22,000 of state nexus positions as a result of the expiration of the statute of limitations. U.S. income taxes have not been provided on $8.5 million of undistributed earnings of our foreign subsidiaries since it is our intention to permanently reinvest such earnings offshore. If the earnings were distributed in the form of dividends, the Company would not be subject to U.S. tax as a result of the Tax Act but could be subject to foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practical.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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