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Note 5 - Income Taxes | 12 Months Ended
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Dec. 31, 2022
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 5. Income Taxes Beginning in 2018, the Tax Cuts and Jobs Act (the "Act”) included two (2) new U.S. corporate tax provisions, the global intangible low-taxed income regime ("GILTI”) and the base-erosion and anti-abuse tax ("BEAT”). The GILTI provision requires the Company to include in its U.S. income tax return non-U.S. subsidiary earnings in excess of an allowable return on the non-U.S. subsidiary’s tangible assets. The Company has elected to treat GILTI as a period cost. The Company evaluated the GILTI provision resulting in a financial statement impact of approximately $325 thousand and $400 thousand for the year ended December 31, 2022 and December 31, 2021 respectively. The Company is below the three-year average gross receipts threshold for BEAT to apply. Income (loss) before income taxes is summarized as follows (in thousands):
|  | Year Ended December 31, |
|  | 2022 |  |  | 2021 |
Domestic |  | $ | (4,079 | ) |  | $ | (5,672 | )
Foreign |  |  | 8,982 |  |  |  | 9,780 |
Total: |  | $ | 4,903 |  |  | $ | 4,108 |
The income tax expense (benefit) is summarized as follows (in thousands):
|  | Year Ended December 31, |
|  | 2022 |  |  | 2021 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | 24 |  |  | $ | - |
Foreign |  |  | 2,705 |  |  |  | 2,438 |
State |  |  | 66 |  |  |  | 117 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | (128 | ) |  |  | (654 | )
Foreign |  |  | 317 |  |  |  | 219 |
State |  |  | (207 | ) |  |  | (12 | )
Net expense |  | $ | 2,777 |  |  | $ | 2,108 |
The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows (dollars in thousands):
|  | Year Ended December 31, |
|  | 2022 |  |  | Rate |  |  | 2021 |  |  | Rate |
Provision for income taxes at federal statutory rate |  | $ | 1,030 |  |  |  | 21.0 | % |  | $ | 863 |  |  |  | 21.0 | %
State income taxes, net of federal benefit |  |  | (125 | ) |  |  | (2.5 | )% |  |  | 68 |  |  |  | 1.6 | %
Permanent differences |  |  | (19 | ) |  |  | (0.4 | )% |  |  | 74 |  |  |  | 1.8 | %
Goodwill impairment |  |  | 517 |  |  |  | 10.5 | % |  |  | - |  |  |  | - | %
Return to provision adjustment |  |  | (223 | ) |  |  | (4.5 | )% |  |  | - |  |  |  | - | %
Foreign tax rate differential |  |  | 1,016 |  |  |  | 20.7 | % |  |  | 731 |  |  |  | 17.8 | %
GILTI tax |  |  | 323 |  |  |  | 6.6 | % |  |  | 401 |  |  |  | 9.7 | %
Change in valuation allowance |  |  | 308 |  |  |  | 6.3 | % |  |  | - |  |  |  | - | %
Other |  |  | (50 | ) |  |  | (1.1 | )% |  |  | (29 | ) |  |  | - 0.6 | %
Net expense |  | $ | 2,777 |  |  |  | 56.6 | % |  | $ | 2,108 |  |  |  | 51.3 | %
In 2022, our effective income tax rate of 56.6% varied from the U.S. federal statutory rate of 21% primarily as a result of dispersion of global income and impact of higher foreign tax rates, permanent items including goodwill impairment, as well as the incremental tax expense associated with the global intangible low-taxed income inclusion under the Tax Cuts and Jobs Act of 2017.
Deferred taxes consist of the following (in thousands): |  | December 31, |
|  | 2022 |  |  | 2021 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carry forwards |  | $ | 2,627 |  |  | $ | 4,144 |
Federal Research and Development Credit |  |  | 240 |  |  |  | 240 |
Deferred revenue |  |  | 86 |  |  |  | 330 |
Accrued payroll |  |  | 270 |  |  |  | 217 |
Payroll taxes payable |  |  | - |  |  |  | 100 |
Outside basis in domestic partnership |  |  | 16 |  |  |  | 92 |
Allowance for doubtful accounts and other receivable |  |  | 327 |  |  |  | 93 |
Share-based compensation expense |  |  | 326 |  |  |  | 407 |
Business interest limitation |  |  | 340 |  |  |  | - |
Depreciation |  |  | - |  |  |  | 156 |
Operating Lease Liability |  |  | 134 |  |  |  | 453 |
Other |  |  | 739 |  |  |  | 343 |
Valuation allowance |  |  | (611 | ) |  |  | (478 | )
Total deferred tax assets |  |  | 4,494 |  |  |  | 6,097 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Goodwill & Intangible assets of subsidiaries |  |  | 376 |  |  |  | 700 |
Capitalized software development costs |  |  | 135 |  |  |  | 476 |
Right To Use Asset |  |  | 134 |  |  |  | 453 |
Depreciation |  |  | 83 |  |  |  | - |
Total deferred tax liabilities |  |  | 728 |  |  |  | 1,629 |
Net deferred taxes |  | $ | 3,766 |  |  | $ | 4,468 |
As of December 31, 2022, the Company’s deferred tax assets were primarily the result of U.S. Net Operating Loss ("NOL”) and Brazil NOL. The Company has gross U.S. Federal NOL carryforwards of $5.1 million and tax effected amount of $1.1 million. Of the $1.1 million U.S. Federal NOL carryforward, approximately $630 thousand has no expiration date, and the remaining balance, if unused, will expire in years 2027 through 2031. The Company has a U.S. State NOL deferred tax asset of $88 thousand of varying expiration dates from 2024 to 2041. The Company has $240 thousand US Research and Development credits with expiration dates ranging 2031 to 2035. The Company has additional gross NOL carryforwards of $1.9 million in Brazil, $1.2 million in Australia, all of which has no expiration date. The tax effected amounts of the Brazil and Australia NOL carryforwards are $662 thousand and $346 thousand respectively. The Company has additional gross NOL carryforwards of $1.1 million in China, $622 thousand in Mexico and $11 thousand in Japan with expiration dates beginning in 2028, 2033 and 2033, respectively. The tax effected amounts of China, Mexico and Japan NOL carryforwards are $264 thousand, $187 thousand and $4 thousand respectively. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing net deferred tax assets. U.S. based net deferred tax assets are approximately $2.2 million. Management continues to monitor its operating performance and currently believes that the achievement of the required future taxable income necessary to realize these deferred assets is more likely than not. Key considerations in this assessment includes current tax law that is expected to continue to generate future U.S. taxable income based on the results of our foreign operations (GILTI tax), our expectation of continued improvements in U.S. operating results and the period of time available to generate future taxable income. For Brazil, Mexico and Japan losses it is expected to be more likely than not there will be sufficient taxable income to utilize the losses in future years. For China and Australia management does not expect its more likely than not deferred tax assets can be realized and therefore a full valuation allowance is recorded with respect to these jurisdictions. A reconciliation of the beginning and ending amount of uncertain tax position reserves is as follows (in thousands):
|  | Year Ended December 31,
|  | 2022 |  | 2021
Balance at January 1 |  | $ | 42 |  | $ | 13
Additions based on tax positions related to the current year |  |  | 4 |  |  | 29
Additions for tax positions of prior years |  |  | - |  |  | -
Reductions for tax positions of prior years |  |  | - |  |  | -
Settlements |  |  | - |  |  | -
Removal for tax provisions of prior years |  |  | - |  |  | –
Balance at December 31 |  | $ | 46 |  | $ | 42
The provision for income taxes includes the impact of uncertain tax position reserves and changes to reserves that are considered appropriate. As of December 31, 2022, included in the balance of uncertain tax position reserves are $46 thousand of reserves that, if recognized, would affect the effective rate on income from continuing operations. Interest and penalties that the tax law requires to be paid on the underpayment of taxes should be accrued on the difference between the amount claimed or expected to be claimed on the return and the tax benefit recognized in the financial statements. The Company's policy is to record this interest and penalties as additional tax expense. We accrued penalties of $.8 thousand and interest of $.3 thousand during 2022 and in total, as of December 31, 2022 recognized a liability related to the uncertain tax position reserves noted above for penalties of $14 thousand and interest of $17 thousand. During 2021, we accrued penalties of $3 thousand and interest of $.7 thousand and in total, as of December 31, 2021, recognized a liability of penalties of $13 thousand and interest of $16 thousand. Management does not expect in the next 12 months that the uncertain tax position reserves will significantly increase or decrease. Consistent with that expectation, interest and penalties related to the uncertain tax position reserve should not significantly increase. Details of the Company's tax reserves at December 31, 2022, are outlined in the table below (in thousands):
|  | Taxes |  |  | Interest |  |  | Penalty |  |  | Total Tax Liability |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State |  | $ | 46 |  |  | $ | 17 |  |  | $ | 14 |  |  | $ | 77 |
Federal |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
International |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
Total reserve |  | $ | 46 |  |  | $ | 17 |  |  | $ | 14 |  |  | $ | 77 |
In management's view, the Company's tax reserves at December 31, 2022 and 2021, for potential domestic state tax liabilities were sufficient. The Company has evaluated the tax liabilities of its international subsidiaries and does not believe a reserve is necessary at this time. SPAR and its subsidiaries file numerous consolidated, combined and separate company income tax returns in the U.S. Federal jurisdiction and in many U.S. states and foreign jurisdictions. With few exceptions, SPAR is subject to U.S. Federal, state and local income tax examinations for the years 2019 through the present. Foreign entities are subject to tax audits that vary based on jurisdiction. However, tax authorities have the ability to review years prior to the position taken by the Company to the extent that SPAR utilized tax attributes carried forward from those prior years.

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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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