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Note 19 - Income Taxes | 12 Months Ended
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Dec. 31, 2020
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
( 19 ) | Income Taxes
The Company accounts for income taxes under the liability method. Accordingly, deferred income taxes have been provided for temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. The components of income (loss) before taxes are as follows (in thousands):
|  | Year ended December 31, |
|  | 2020 |  |  | 2019 |
Domestic |  | $ | (3,115 | ) |  | $ | (5,337 | )
Foreign |  |  | 1,823 |  |  |  | 1,384 |
Total |  | $ | (1,292 | ) |  | $ | (3,953 | )
The components of income tax (benefit) expense are as follows (in thousands):
|  | Year ended December 31, |
|  | 2020 |  |  | 2019 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | 0 |  |  | $ | 0 |
State |  |  | (125 | ) |  |  | (14 | )
Foreign |  |  | 235 |  |  |  | 270 |
Total current income tax expense |  |  | 110 |  |  |  | 256 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | 0 |  |  |  | (217 | )
State |  |  | 0 |  |  |  | (23 | )
Foreign |  |  | (3,070 | ) |  |  | (20 | )
Total deferred income tax (benefit) expense |  |  | (3,070 | ) |  |  | (260 | )
Income tax (benefit) expense, net |  | $ | (2,960 | ) |  | $ | (4 | )
The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements in accordance with Income Taxes, Topic 740 (ASC 740 ). These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of assets or liabilities are recovered or settled. ASC 740 requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. During this evaluation, the Company reviews its forecast of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is needed. Based on its current forecast, the Company believes it will have sufficient future taxable income to realize the deferred tax assets recorded by its Mexican subsidiaries. Therefore, the Company reversed its valuation allowance recorded in prior years against certain Mexican net deferred tax assets and recognized an income tax benefit of $3,717,000 during the year ended December 31, 2020. Based on the Company's consideration of all positive and negative evidence, including the future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations, the Company has established a valuation allowance against all U.S. deferred tax assets. Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S. tax benefits. Income tax (benefit) expense for each year is allocated to continuing operations, discontinued operations, extraordinary items, other comprehensive income, the cumulative effects of accounting changes, and other charges or credits recorded directly to shareholders' equity. ASC 740 - 20 - 45 Income Taxes, Intraperiod Tax Allocation, Other Presentation Matters includes an exception to the general principle of intraperiod tax allocations. The codification source states that the tax effect of pretax income or loss from continuing operations generally should be determined by a computation that considers only the tax effects of items that are included in continuing operations. The exception to that incremental approach is that all items (i.e. other comprehensive income, discontinued operations, etc.) be considered in determining the amount of tax benefit that results from a loss from continuing operations and that benefit should be allocated to continuing operations. That is, when a company has a current period loss from continuing operations, management must consider income recorded in other categories in determining the tax benefit that is allocated to continuing operations. This includes situations in which a company has recorded a full valuation allowance at the beginning and end of the period, and the overall tax provision for the year is zero. The intraperiod tax allocation is performed once the overall tax provision has been computed and allocates that provision to various income statement (continuing operations, discontinued operations), other comprehensive income and balance sheet captions. While the intraperiod tax allocation does not change the overall tax provision, it results in a gross-up of the individual components. Additionally, tax jurisdictions must be considered separately; therefore the allocation to the U.S. and Mexico must be looked at separately. As the Company experienced a net loss from operations in the U.S. for the year ended December 31, 2019 and other comprehensive income from employee benefit adjustments, the Company has allocated income tax expense against the components of other comprehensive income in 2019 using a 23.3% effective tax rate. Income tax benefit for the year ended December 31, 2019 includes a benefit of $240,000 due to the required intraperiod tax allocation. Conversely, other comprehensive income for the year ended December 31, 2019 includes income tax expense of $240,000. There was no intraperiod tax allocation required for the year ended December 31, 2020. On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform Act”) was enacted, which significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a one -time repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The Tax Reform Act also provided for a one -time deemed repatriation of post- 1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Reform Act require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. The Company is subject to incremental U.S. tax on GILTI income due to expense allocations required by the U.S. foreign tax credit rules. The Company has elected to account for the GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements. The Company files a consolidated federal income tax return which includes all domestic subsidiaries. State income taxes paid in the U.S. during 2020 and 2019 totaled $13,000 and $37,000, respectively. State income tax refunds received in the U.S. during 2020 and 2019 totaled $5,000 and $51,000, respectively. Foreign income taxes paid during 2020 and 2019 totaled $206,000 and $293,000, respectively. There were no foreign refunds received in 2020 and 2019. There were no federal taxes paid in 2020 and 2019. The Company received federal refunds of $92,000 in 2020 and 2019. At December 31, 2020, the Company had $140,310,000 of federal net operating loss carryforwards available to offset future federal taxable income. The pre- 2018 federal net operating loss carryforwards of $134,501,000 expire in various amounts from 2026 to 2037. Federal net operating loss carryforwards generated in 2018 and forward will have an unlimited carryforward period as part of the Tax Act. The indefinite lived net operating loss carryforwards as of December 31, 2020 are approximately $5,809,000. At December 31, 2020, the Company had $105,284,000 of state net operating loss carryforwards available to offset future state taxable income, the majority of which relates to Florida ( $57,524,000 ) and Kentucky ( $47,760,000 ). The pre- 2018 state net operating loss carryforwards totaling approximately $102,085,000 expire in various amounts from 2026 to 2037. State net operating loss carryforwards generated in 2018 and forward will have an unlimited carryforward. The indefinite lived state net operating loss carryforwards as of December 31, 2020 are approximately $3,199,000. The following is a reconciliation of income tax (benefit) expense to that computed by applying the federal statutory rate to income (loss) before income taxes (in thousands):
|  | Year ended December 31, |
|  | 2020 |  |  | 2019 |
Federal tax expense at the statutory rate |  | $ | (271 | ) |  | $ | (830 | )
Current year permanent differences |  |  | 273 |  |  |  | 257 |
State income taxes, net of federal tax impact |  |  | (166 | ) |  |  | (131 | )
Effect of tax rates of foreign subsidiaries |  |  | 151 |  |  |  | 125 |
Currency translation effect on temporary differences |  |  | 223 |  |  |  | 312 |
Change in valuation allowance |  |  | (2,994 | ) |  |  | (497 | )
Intraperiod tax allocation |  |  | 0 |  |  |  | (240 | )
State NOL carryforwards |  |  | (471 | ) |  |  | 1,446 |
Other items |  |  | 295 |  |  |  | (446 | )
Income tax (benefit) expense, net |  | $ | (2,960 | ) |  | $ | (4 | )
The gross deferred tax asset for the Company's Mexican subsidiaries was $3,604,000 and $4,054,000 as of December 31, 2020 and 2019, respectively. Deferred income tax assets and liabilities are as follows (in thousands):
|  | December 31, |
|  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
Compensation and benefit accruals |  | $ | 386 |  |  | $ | 359 |
Inventory valuation |  |  | 877 |  |  |  | 866 |
Federal and state net operating loss carryforwards |  |  | 33,851 |  |  |  | 32,470 |
Deferred revenue |  |  | 391 |  |  |  | 975 |
Accounts receivable allowance |  |  | 7 |  |  |  | 8 |
Depreciation |  |  | 0 |  |  |  | 85 |
Defined benefit pension plan |  |  | 708 |  |  |  | 591 |
Lease liabilities |  |  | 1,193 |  |  |  | 1,334 |
Foreign deferred revenue and other provisions |  |  | 3,604 |  |  |  | 4,054 |
Other |  |  | 718 |  |  |  | 661 |
Total |  |  | 41,735 |  |  |  | 41,403 |
Domestic valuation allowance |  |  | (37,015 | ) |  |  | (36,217 | )
Foreign valuation allowance |  |  | 0 |  |  |  | (3,717 | )
Total deferred tax assets |  |  | 4,720 |  |  |  | 1,469 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | (114 | ) |  |  | 0 |
Right-of-use assets, net |  |  | (1,002 | ) |  |  | (1,132 | )
Total deferred tax liabilities |  |  | (1,116 | ) |  |  | (1,132 | )
Net deferred tax asset |  | $ | 3,604 |  |  | $ | 337 |
The ASC Income Tax Topic 740 includes guidance for the accounting for uncertainty in income taxes recognized in an enterprise's financials. Specifically, the guidance prescribes a two -step process, which is the recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The total amount of gross unrecognized tax benefits as of December 31, 2020 and 2019 was $200,000 . There were no changes to the unrecognized tax benefit balance during the years ended December 31, 2020 and 2019. If the Company's positions are sustained by the taxing authority, the entire balance at December 31, 2020 would reduce the Company's effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes accrued interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2020 and 2019, the Company does not have an accrual for the payment of tax-related interest and penalties. The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Internal Revenue Service (IRS) is not currently examining the Company's U.S. income tax returns for 2017 through 2019, for which the statute has yet to expire. In addition, open tax years related to state and foreign jurisdictions remain subject to examination.

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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 http://asc.fasb.org/extlink&oid=84230637&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 http://asc.fasb.org/extlink&oid=116825942&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 http://asc.fasb.org/extlink&oid=84230637&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 http://asc.fasb.org/extlink&oid=116825942&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 http://asc.fasb.org/extlink&oid=84230637&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 http://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 http://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 http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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