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Note 5 - Income Taxes | 12 Months Ended
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Dec. 31, 2023
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 $0 and $0.3 million for the year ended December 31, 2023 and December 31, 2022 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, |
|  | 2023 |  |  | 2022 |
Domestic |  | $ | (2,134 | ) |  | $ | (4,079 | )
Foreign |  |  | 9,267 |  |  |  | 8,982 |
Total: |  | $ | 7,133 |  |  | $ | 4,903 |
The income tax expense (benefit) is summarized as follows (in thousands):
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | (54 | ) |  | $ | 24 |
Foreign |  |  | 2,311 |  |  |  | 2,705 |
State |  |  | 150 |  |  |  | 66 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | (145 | ) |  |  | (128 | )
Foreign |  |  | 91 |  |  |  | 317 |
State |  |  | 4 |  |  |  | (207 | )
Net expense |  | $ | 2,357 |  |  | $ | 2,777 |
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, |
|  | 2023 |  |  | Rate |  |  | 2022 |  |  | Rate |
Provision for income taxes at federal statutory rate |  | $ | 1,498 |  |  |  | 21.0 | % |  | $ | 1,030 |  |  |  | 21.0 | %
State income taxes, net of federal benefit |  |  | 123 |  |  |  | 1.7 | % |  |  | (125 | ) |  |  | (2.5 | )%
Permanent differences |  |  | 282 |  |  |  | 4.0 | % |  |  | (19 | ) |  |  | (0.4 | )%
Goodwill adjustment |  |  | - |  |  |  | - |  |  |  | 517 |  |  |  | 10.5 | %
Section 162(m) adjustment |  |  | 55 |  |  |  | 0.8 | % |  |  | - |  |  |  | - |
Return to provision adjustment |  |  | (339 | ) |  |  | (4.8 | )% |  |  | (223 | ) |  |  | (4.5 | )%
Foreign tax rate differential |  |  | 877 |  |  |  | 12.3 | % |  |  | 1,016 |  |  |  | 20.7 | %
GILTI tax |  |  | - |  |  |  | - |  |  |  | 323 |  |  |  | 6.6 | %
Sale of membership interest |  |  | 149 |  |  |  | 2.1 | % |  |  | - |  |  |  | - |
Change in valuation allowance |  |  | (268 | ) |  |  | (3.8 | )% |  |  | 308 |  |  |  | 6.3 | %
Other |  |  | (20 | ) |  |  | (0.3 | )% |  |  | (50 | ) |  |  | (1.1 | )%
Net expense |  | $ | 2,357 |  |  |  | 33.0 | % |  | $ | 2,777 |  |  |  | 56.6 | %
In 2023, our effective income tax rate of 33.0% varied from the U.S. federal statutory rate of 21% primarily as a result of foreign rate differential, sale of membership interest disposition of National Merchandising Services, LLC, and permanent differences.
Deferred taxes consist of the following (in thousands): |  | December 31, |
|  | 2023 |  |  | 2022 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carry forwards |  | $ | 2,270 |  |  | $ | 2,627 |
Capital loss carry forwards |  |  | 58 |  |  |  | - |
Federal Research and Development Credit |  |  | 240 |  |  |  | 240 |
Foreign withholding tax |  |  | 316 |  |  |  | - |
Deferred revenue |  |  | – |  |  |  | 86 |
Accrued payroll |  |  | 155 |  |  |  | 270 |
Outside basis in domestic partnership |  |  | – |  |  |  | 16 |
Allowance for credit losses and other receivable |  |  | 63 |  |  |  | 327 |
Share-based compensation expense |  |  | 253 |  |  |  | 326 |
Business interest limitation |  |  | 519 |  |  |  | 340 |
Operating lease liability |  |  | 504 |  |  |  | 134 |
Capitalized software development costs |  |  | 63 |  |  |  | - |
Other |  |  | 1,371 |  |  |  | 739 |
Total deferred tax assets, gross |  |  | 5,812 |  |  |  | 5,105 |
Valuation allowance |  |  | (242 | ) |  |  | (611 | )
Total deferred tax assets |  |  | 5,570 |  |  |  | 4,494 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Goodwill & Intangible assets of subsidiaries |  |  | 324 |  |  |  | 376 |
Capitalized software development costs |  |  | - |  |  |  | 135 |
Right to Use Asset |  |  | 504 |  |  |  | 134 |
Depreciation |  |  | 55 |  |  |  | 83 |
Total deferred tax liabilities |  |  | 883 |  |  |  | 728 |
Net deferred income taxes |  | $ | 4,687 |  |  | $ | 3,766 |
As of December 31, 2023, 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 $5.0 million and tax effected amount of $1.1 million. Of the $1.1 million U.S. Federal NOL carryforward, approximately $0.6 million 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 $0.1 million of varying expiration dates from 2024 to 2041. The Company has gross $0.3 million of US Capital Loss carryforwards with expiration date of 2028. The tax effected amount of US Capital Loss carryforward is $0.1 million. The Company has $0.2 million US Research and Development credits with expiration dates ranging 2031 to 2035. The Company has additional gross NOL carryforwards of $1.7 million in Brazil, all of which has no expiration date. The tax effected amount of the Brazil NOL carryforwards is $0.6 million. The Company has additional gross NOL carryforwards of $1.0 million in China, and $1.1 million in Mexico with expiration dates beginning in 2028, and 2033, respectively. The tax effected amounts of China, and Mexico NOL carryforwards are $0.2 million, and $0.3 million 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 $2.3 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 include our expectation of continued improvements in U.S. operating results and the period of time available to generate future taxable income. For Brazil, and Mexico losses it is expected to be more likely than not that there will be sufficient taxable income to utilize the losses in future years. For China 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,
|  | 2023 |  | 2022
Beginning balance |  | $ | 46 |  | $ | 42
Additions based on tax positions related to the current year |  |  | 8 |  |  | 4
Removal for tax provisions of prior years |  |  | - |  |  | –
Ending balance |  | $ | 54 |  | $ | 46
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, 2023, included in the balance of uncertain tax position reserves are $0.05 million of reserves that, if recognized, would affect the effective rate of 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 $1 thousand and interest of $.4 thousand during 2023 and in total, as of December 31, 2023 recognized a liability related to the uncertain tax position reserves noted above for penalties of $15 thousand and interest of $17 thousand. During 2022, we accrued penalties of $.8 thousand and interest of $.3 thousand and in total, as of December 31, 2022, recognized a liability of penalties of $14 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, 2023 are outlined in the table below (in thousands):
|  | Taxes |  |  | Interest |  |  | Penalty |  |  | Total Tax Liability |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State |  | $ | 54 |  |  | $ | 17 |  |  | $ | 15 |  |  | $ | 86 |
Federal |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
International |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
Total reserve |  | $ | 54 |  |  | $ | 17 |  |  | $ | 15 |  |  | $ | 86 |
In management's view, the Company's tax reserves at December 31, 2023 and 2022, 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 2020 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 -Topic 946 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 13 -Publisher FASB -URI https://asc.fasb.org//1943274/2147480990/946-20-50-13 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 235 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//740/tableOfContent Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 14 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-14 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 21 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-21 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 270 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482526/740-270-50-1 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 17 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-17 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-1 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-2 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 30 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482603/740-30-50-2 + Details
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