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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
INCOME TAXES [Abstract] |
INCOME TAXES | 9. INCOME TAXES The provision for income taxes consists of the following:
|  | Years Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Income Tax Provision |  |  |  |  | Restated |  |  | Restated |
Current provision: |  |  |  |  |  |  |  |  |
Federal |  | $ | (582,502 | ) |  | $ | 879,822 |  |  | $ | 2,999,960 |
State |  |  | 7,341 |  |  |  | 223,156 |  |  |  | 343,954 |
Foreign |  |  | (10,477 | ) |  |  | 356,199 |  |  |  | 544,495 |
Interest expense related to UTB |  |  | 25,640 |  |  |  | 80,868 |  |  |  | 45,942 |
|  |  | (559,998 | ) |  |  | 1,540,045 |  |  |  | 3,934,351 |
Deferred provision (benefit): |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (94,001 | ) |  |  | 194,735 |  |  |  | (59,918 | )
State |  |  | (23,559 | ) |  |  | 36,629 |  |  |  | (52,637 | )
Foreign |  |  | (12,905 | ) |  |  | 42,045 |  |  |  | 38,036 |
|  |  | (130,465 | ) |  |  | 273,409 |  |  |  | (74,519 | )
Total tax provision (benefit) |  | $ | (690,463 | ) |  | $ | 1,813,454 |  |  | $ | 3,859,832 |
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company is evaluating the impact of the CARES Act and expects that the NOL carryback provision of the CARES Act will result in a cash tax benefit to the Company. On December 22, 2017, the Tax Act was enacted which included a number of changes to U.S. tax laws that impact the Company, including beginning in calendar 2018, a reduction of the U.S. corporate tax rate from 35% to 21%, the repeal of the domestic production activities deduction, new taxes on certain foreign sourced income, and new limitations on certain business deductions. The Tax Act also provided for a one-time transition tax on certain foreign earnings. Because the Tax Act was enacted in 2017, we recorded an estimated $1.3 million (Restated) of income tax expense in the fourth quarter of 2017 as follows:
Transition tax on deemed repatriation of certain foreign earnings (1) |  | $ | 603,976 |
Foreign withholding taxes (1) |  |  | 290,128 |
Remeasuring deferred tax position (2) |  |  | 402,135 |
|  | $ | 1,296,239 |
(1) classified as part of the Federal current provision in 2017
(2) classified as part of the Federal deferred provision in 2017
The amounts in 2017 were recorded based on estimates and our current interpretation of the Tax Act and Staff Accounting Bulletin (“SAB”) No. 118, which provides guidance related to ASC Topic 740, Income Tax. After completing our accounting for the income tax effects of the Tax Act and taking the filings of our 2017 tax returns across all of our jurisdictions into consideration, we estimated additional income tax expense of approximately $0.1 million primarily related to an increase in the transition tax. Also negatively impacting our effective tax rate in 2018, certain of our international locations incurred operating losses for which no tax benefit was recorded, additional U.S. federal income was recognized related to cross-border intercompany transactions with our Canadian subsidiary, and the Tax Act created new taxes on foreign sourced income while eliminating the domestic manufacturing deduction. Income (loss) before income taxes was earned in the following tax jurisdictions:
|  | Years Ended December 31, |
Income (Loss) Before Income Taxes |  | 2019 |  |  | 2018 |  |  | 2017 |
United States |  | $ | (1,960,121 | ) |  | $ | 5,352,088 |  |  | $ | 5,811,797 |
Spain |  |  | 20,595 |  |  |  | 66,799 |  |  |  | (40,505 | )
Canada |  |  | (130,878 | ) |  |  | 1,166,176 |  |  |  | 937,655 |
Australia |  |  | (169,718 | ) |  |  | 7,124 |  |  |  | (115,809 | )
United Kingdom |  |  | (354,122 | ) |  |  | (380,368 | ) |  |  | (254,862 | )
TOTAL |  | $ | (2,594,244 | ) |  | $ | 6,211,819 |  |  | $ | 6,338,276 |
The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
Deferred income tax assets: |  | 2019 |  |  | 2018 |  |  | 2017 |
Inventory |  | $ | 468,438 |  |  | $ | 578,029 |  |  | $ | 542,820 |
Stock-based compensation |  |  | 51,430 |  |  |  | 46,165 |  |  |  | 29,332 |
Accounts receivable |  |  | 3,977 |  |  |  | - |  |  |  | 3,239 |
Sales returns |  |  | 119,404 |  |  |  | 61,251 |  |  |  | 52,205 |
Deferred revenue |  |  | - |  |  |  | 48,878 |  |  |  | 67,642 |
Accrued expenses |  |  | - |  |  |  | 222,538 |  |  |  | 227,489 |
FX gain/loss in OCI |  |  | 359,078 |  |  |  | 480,112 |  |  |  | 240,045 |
Goodwill and other intangible assets amortization |  |  | 32,670 |  |  |  | - |  |  |  | - |
Net operating loss |  |  | 459,196 |  |  |  | 344,578 |  |  |  | 337,904 |
Change in tax method |  |  | - |  |  |  | 375,595 |  |  |  | 631,015 |
Accrued bonuses |  |  | - |  |  |  | 250,355 |  |  |  | 363,710 |
Leases |  |  | 144,699 |  |  |  | - |  |  |  | - |
Other |  |  | 25 |  |  |  | - |  |  |  | - |
Total deferred income tax assets |  | $ | 1,638,917 |  |  | $ | 2,407,501 |  |  | $ | 2,495,401 |
Less: valuation allowance |  |  | (381,872 | ) |  |  | (260,313 | ) |  |  | (208,350 | )
Total deferred income tax assets, net of valuation allowance |  | $ | 1,257,045 |  |  | $ | 2,147,188 |  |  | $ | 2,287,051 |
Property and equipment depreciation |  | $ | 739,633 |  |  | $ | 897,494 |  |  | $ | 1,004,163 |
Goodwill and other intangible assets amortization |  |  | - |  |  |  | 157,401 |  |  |  | 151,983 |
Accrued expenses |  |  | 90,079 |  |  |  | - |  |  |  | - |
Total deferred income tax liabilities |  | $ | 829,712 |  |  | $ | 1,054,895 |  |  | $ | 1,156,146 |
Net deferred tax asset (liability) |  | $ | 427,333 |  |  | $ | 1,092,293 |  |  | $ | 1,130,905 |
The valuation allowance for deferred income tax assets increased by $0.1 million in each of the years ended December 31, 2019, 2018, and 2017. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, the difference in tax rates for loss carryback periods, foreign income/loss positions, expenses that are nondeductible for tax purposes, and differences in tax rates. Below is a reconciliation of our effective tax rate from the statutory rate:
|  | Years Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Statutory rate – Federal U.S. income tax |  |  | 21% |  |  |  | 21% |  |  |  | 34% |
State and local taxes |  |  | 0% |  |  |  | 4% |  |  |  | 5% |
Impact of Tax Act |  |  | 0% |  |  |  | 0% |  |  |  | 20% |
Non-U.S. income tax at different rates |  |  | 0% |  |  |  | 3% |  |  |  | (3)% |
Permanent book/tax differences |  |  | (6)% |  |  |  | 0% |  |  |  | 1% |
Difference in tax rates in loss carryback periods |  |  | 3% |  |  |  | 0% |  |  |  | 0% |
Change in valuation allowance |  |  | (5)% |  |  |  | 1% |  |  |  | 1% |
Rate differential on UTB reversals |  |  | 13% |  |  |  | 0% |  |  |  | 0% |
Other, net |  |  | 1% |  |  |  | 0% |  |  |  | 3% |
Effective rate |  |  | 27% |  |  |  | 29% |  |  |  | 61% |
We file a consolidated U.S. income tax return as well as state tax returns on a consolidated, combined, or stand-alone basis, depending on the jurisdiction. We are no longer subject to U.S. federal income tax examinations by tax authorities for years prior to the tax year ended December 2016. Depending on the jurisdiction, we are no longer subject to state examinations by tax authorities for years prior to the December 2015 and December 2016 tax years. A reconciliation of the beginning and ending amount of unrecognized tax benefits (UTB) is as follows:
Fiscal Year |  | 2019 |  |  | 2018 |  |  | 2017 |
UTB at beginning of the year |  | $ | 1,415,714 |  |  | $ | 1,197,077 |  |  | $ | 937,705 |
Gross decrease to tax positions in prior periods |  |  | (1,145,227 | ) |  |  | (102,236 | ) |  |  | - |
Gross increase to tax positions in current period |  |  | - |  |  |  | 351,304 |  |  |  | 213,430 |
Interest expense |  |  | 25,640 |  |  |  | 80,869 |  |  |  | 45,942 |
Lapses in statute |  |  | - |  |  |  | (111,300 | ) |  |  | - |
UTB at end of year |  | $ | 296,127 |  |  | $ | 1,415,714 |  |  | $ | 1,197,077 |
We file tax returns in the U.S. and a limited number of foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local, or non-U.S. income tax examinations for years before 2015. Included in the balance of UTBs as of December 31, 2019, 2018 and 2017 are $0.1 million, $0.1 million, and $0.2 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of UTBs as of December 31, 2019, 2018 and 2017 are $0.2 million, $1.3 million and $1.0 million, respectively, of tax benefits that, if recognized, would result in adjustments primarily to deferred taxes.

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