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Note 14 - Income Taxes | 12 Months Ended
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Aug. 31, 2019
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 14. INCOME TAXES On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or Tax Reform Act. The Tax Reform Act made broad and complex changes to the U.S. tax code, which had a number of impacts on the Company’s fiscal year ended August 31 2018, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, generally eliminating U.S. federal income taxes on dividends received from foreign subsidiaries and joint ventures after December 31, 2017, and imposing a one -time deemed repatriation tax on certain unremitted earnings of foreign subsidiaries and joint ventures. The Company was subject to a blended U.S. federal tax rate of 25.7% for the fiscal year ended August 31, 2018 as a result of the reduction of the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. For the fiscal year ended August 31, 2019, the Company was subject to a U.S. federal tax rate of 21.0%. The provision for income taxes for the fiscal years ended August 31, 2019 and 2018 was approximately as follows:
|  | Fiscal Year Ended August 31,
|  | 2019 |  | 2018
Current: |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | — |
State |  |  | 48,000 |  |  |  | 1,000 |
Foreign |  |  | 902,000 |  |  |  | 671,000 |
|  |  | 950,000 |  |  |  | 672,000 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | (315,000 | ) |  |  | 477,000 |
State |  |  | (21,000 | ) |  |  | 24,000 |
Foreign |  |  | 228,000 |  |  |  | (297,000 | )
|  |  | (108,000 | ) |  |  | 204,000 |
|  | $ | 842,000 |  |  | $ | 876,000 |
Reconciliations of the expected federal income tax at the statutory rate ( 21.0% in fiscal 2019 and 25.7% in fiscal 2018 ) with the provisions for income taxes for the fiscal years ended August 31, 2019 and 2018 were approximately as follows:
|  | Fiscal Year Ended August 31,
|  | 2019 |  | 2018
Tax computed at statutory rates |  | $ | 1,398,000 |  |  | $ | 2,081,000 |
State income tax, net of federal benefit |  |  | 27,000 |  |  |  | 25,000 |
Tax effect on equity in income of international joint ventures |  |  | (1,490,000 | ) |  |  | (1,903,000 | )
Tax effect of foreign operations |  |  | 672,000 |  |  |  | 101,000 |
Deemed repatriation |  |  | 204,000 |  |  |  | 4,011,000 |
Foreign tax credit |  |  | - |  |  |  | (3,783,000 | )
Research and development credit |  |  | (133,000 | ) |  |  | (10,000 | )
Valuation allowance |  |  | 133,000 |  |  |  | (173,000 | )
Stock based compensation |  |  | 208,000 |  |  |  | 57,000 |
Non-controlling interest |  |  | (74,000 | ) |  |  | (103,000 | )
Deferred rate change |  |  | - |  |  |  | 633,000 |
Other |  |  | (103,000 | ) |  |  | (60,000 | )
|  | $ | 842,000 |  |  | $ | 876,000 |
The Company has not provided U.S. income taxes or foreign withholding taxes with respect to its portion of the cumulative undistributed earnings of certain foreign subsidiaries and joint ventures that are essentially permanent in duration. The Tax Reform Act generally eliminated U.S. federal income taxes on dividends received from the Company’s foreign subsidiaries and joint ventures after December 31, 2017. However, the Company will still be subject to foreign withholding taxes upon repatriation of any undistributed earnings that are not essentially permanent in duration. The Company recorded tax expense of approximately $4,000 and $79,000 during fiscal 2019 and fiscal 2018, respectively, representing foreign withholding taxes to be paid with respect to the portion of the cumulative undistributed earnings of foreign subsidiaries and joint ventures that the Company determined were not essentially permanent in duration. The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. The tax effect of the temporary differences and tax carryforwards comprising the net deferred taxes shown on the consolidated balance sheets as of August 31, 2019 and 2018 was approximately as follows:
|  | August 31,
|  | 2019 |  | 2018
Accrued compensation |  | $ | 153,400 |  |  | $ | 430,600 |
Inventory costs |  |  | 60,900 |  |  |  | 58,900 |
Other accrued expenses |  |  | 39,700 |  |  |  | 63,700 |
Goodwill and other intangible assets |  |  | 688,400 |  |  |  | 695,800 |
Stock-based compensation |  |  | 299,300 |  |  |  | 197,500 |
Foreign tax credit carryforward |  |  | 5,790,500 |  |  |  | 5,789,600 |
Other credit and loss carryforwards |  |  | 3,631,700 |  |  |  | 3,241,200 |
Total deferred tax assets |  |  | 10,683,900 |  |  |  | 10,477,300 |
Valuation allowance |  |  | (8,764,300 | ) |  |  | (8,654,500 | )
Total deferred tax assets after valuation allowance |  |  | 1,899,600 |  |  |  | 1,822,800 |
Property and equipment |  |  | (111,900 | ) |  |  | (124,600 | )
Other |  |  | (153,400 | ) |  |  | (146,200 | )
Total deferred tax liabilities |  |  | (265,300 | ) |  |  | (270,800 | )
Net deferred tax assets |  | $ | 1,634,300 |  |  | $ | 1,552,000 |
As of August 31, 2019, the Company had foreign tax credit carryforwards of approximately $5,790,500, which will begin to expire if not utilized prior to August 31, 2021. In addition, the Company had federal and state tax credit carryforwards of $2,973,800 as of August 31, 2019 which began to expire in fiscal 2020. These federal and state tax credit carryforwards consist primarily of federal and Minnesota research and development credit carryforwards. The Company also has a deferred tax asset of $532,000 for federal and state net operating loss carryforwards as of August 31, 2019. The federal net operating loss carryforward has an indefinite carryforward period. The Company has a deferred tax asset of $152,000 for foreign net operating loss carryforwards, which will begin to expire in fiscal 2021. As of August 31, 2019, the Company has recorded a valuation allowance of $5,790,500 with respect to the foreign tax credit carryforwards. In addition, the Company has recorded a valuation allowance of $2,973,800 with respect to federal and state tax credit carryforwards. As of August 31, 2018, the Company had recorded a valuation allowance of $5,789,600 with respect to the foreign tax credit carryforwards. In addition, the Company had recorded a valuation allowance of $2,864,900 with respect to federal and state tax credit carryforwards. The Company records a tax valuation allowance to reduce deferred tax assets to the amount expected to be realized when it is more likely than not that some portion or all its deferred tax assets will not be realized. The Company determined based on all available evidence, including historical data and projections of future results, that it is more likely than not that all its deferred tax assets, except for its foreign tax credit carryforward and federal and Minnesota research and development credit carryforwards will be fully realized. The Company determined that its deferred tax asset related to foreign tax credit carryforwards will not be realized due to insufficient foreign source taxable income within the carryforward period and the fact that for ordering purposes the foreign tax credit carryforwards are not allowed to be utilized until after any current year foreign tax credits are utilized. In addition, based on historical data and future projections, the Company determined that it is more likely than not that its deferred tax asset related to federal and Minnesota research and development credit carryforwards will not be realized due to insufficient federal and Minnesota taxable income within the carryforward period after considering the foreign tax credit usage. The following is a tabular reconciliation of the total amounts of approximated unrecognized tax benefits:
|  | Fiscal Year Ended August 31,
|  | 2019 |  | 2018
Gross unrecognized tax benefits – beginning balance |  | $ | 242,000 |  |  | $ | 250,000 |
Gross decreases – prior period tax positions |  |  | 1,000 |  |  |  | (12,000 | )
Gross increases – current period tax positions |  |  | 5,000 |  |  |  | 4,000 |
Gross unrecognized tax benefits – ending balance |  | $ | 248,000 |  |  | $ | 242,000 |
The entire amount of unrecognized tax benefits would affect the effective tax rate if recognized. It is not expected that the amount of unrecognized tax benefits will change significantly in the next 12 months. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the Company’s income tax provision. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet. There was no liability for the payment of interest and penalties as of both August 31, 2019 and August 31, 2018. The Company is subject to taxation in the United States and various states and foreign jurisdictions. With few exceptions, as of August 31, 2019, the Company is no longer subject to federal, state, local, or foreign examinations by tax authorities for years prior to August 31, 2016.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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