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INCOME TAXES | 12 Months Ended
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Dec. 31, 2022
INCOME TAXES [Abstract] |
INCOME TAXES | 7. INCOME TAXES The provision for income taxes consists of the following:
(in thousands) |  | Year Ended December 31, |
Income Tax Provision |  | 2022 |  |  | 2021 |
Current provision: |  |  |  |  |  |
Federal |  | $ | 16 |  |  | $ | 640 |
State |  |  | 41 |  |  |  | 98 |
Foreign |  |  | 96 |  |  |  | - |
Related to UTP |  |  | 28 |  |  |  | 19 |
|  |  | 181 |  |  |  | 757 |
Deferred provision: |  |  |  |  |  |  |  |
Federal |  |  | - |  |  |  | - |
State |  |  | - |  |  |  | - |
Foreign |  |  | - |  |  |  | 82 |
|  |  | - |  |  |  | 82 |
Total tax provision |  | $ | 181 |  |  | $ | 839 |
Earnings occurring outside the U.S. are deemed to be indefinitely reinvested outside of the U.S. to support the Company’s foreign operations. As a result, if the Company accumulates earnings overseas, they will be used for investment in the Company’s businesses outside the U.S. The Company will use cash generated from U.S. operations and short- and long-term borrowings to meet the Company’s U.S. cash needs. The determination of unrecognized deferred tax liabilities for temporary differences in investments in foreign subsidiaries is not practicable. The Company has received $1.4 million in tax refund in 2022 as a result of the CARES Act NOL carryback provision and estimates that we will receive an additional $0.2 million in the future. We have $3.7 million of state tax net operating loss (“NOL”) carryovers which will begin to expire in 2025. We also have a full valuation allowance on $0.5 million of foreign tax NOL carryovers that do not expire and therefore no deferred tax assets. 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. Income (loss) before income taxes was earned in the following tax jurisdictions:
(in thousands) |  | Year Ended December 31, |
Income (Loss) Before Income Taxes |  | 2022 |  |  | 2021 |
United States |  | $ | 733 |  |  | $ | 2,552 |
Spain |  |  | (83 | ) |  |  | (135 | )
Canada |  |  | 758 |  |  |  | (229 | )
Australia |  |  | - |  |  |  | (1 | )
United Kingdom |  |  | - |  |  |  | 6 |
TOTAL |  | $ | 1,408 |  |  | $ | 2,193 |
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: |  | 2022 |  |  | 2021 |
(in thousands) |  |  |  |  |  |
Inventory |  | $ | 471 |  |  | $ | 464 |
Stock-based compensation |  |  | 93 |  |  |  | 59 |
Accounts receivable |  |  | 14 |  |  |  | 4 |
Sales returns |  |  | 47 |  |  |  | 125 |
Foreign currency translation gain/loss in OCI |  |  | 689 |  |  |  | 342 |
Goodwill and other intangible assets amortization |  |  | - |  |  |  | - |
Net operating loss |  |  | 261 |  |  |  | 646 |
Accrued expenses |  |  | 63 |  |  |  | 359 |
Leases |  |  | 152 |  |  |  | 195 |
Other |  |  | - |  |  |  | 2 |
Total deferred income tax assets |  |  | 1,790 |  |  |  | 2,196 |
Less: valuation allowance |  |  | (1,151 | ) |  |  | (1,489 | )
Total deferred income tax assets, net of valuation allowance |  | $ | 639 |  |  | $ | 707 |
Property and equipment depreciation |  | $ | 639 |  |  | $ | 707 |
Total deferred income tax liabilities |  |  | 639 |  |  |  | 707 |
Net deferred tax asset (liability) |  | $ | - |  |  | $ | - |
We are required to reduce deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. We determined a $0.3 million decrease to the valuation allowance for deferred income tax assets was necessary as of December 31, 2022, as compared to 2021. Our evaluation considered, among other things, the nature, frequency, and severity of losses, forecasts of future profitability and the duration of statutory carryforward periods. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, foreign income/loss positions, expenses that are nondeductible for tax purposes, the change in our valuation allowance associated with our deferred tax assets, and differences in tax rates. Below is a reconciliation of our effective tax rate from the statutory rate:
|  | Year Ended December 31, |
|  | 2022 |  |  | 2021 |
Statutory rate – Federal U.S. income tax |  |  | 21.0 | % |  |  | 21.0 | %
State and local taxes |  |  | (0.6 | )% |  |  | 9.0 | %
Permanent book/tax differences |  |  | 11.3 | % |  |  | 3.0 | %
Difference in tax rates in loss carryback periods |  |  | 0.0 | % |  |  | 0.0 | %
Change in valuation allowance |  |  | (20.3 | )% |  |  | 6.0 | %
Rate differential on UTP reversals |  |  | 2.0 | % |  |  | 1.0 | %
Other, net |  |  | (0.5 | )% |  |  | (1.7 | )%
Effective rate |  |  | 12.9 | % |  |  | 38.3 | %
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 2017. Depending on the jurisdiction, we are no longer subject to state examinations by tax authorities for years prior to the December 2016 and December 2017 tax years. We file tax returns in a limited number of foreign jurisdictions. With few exceptions, we are no longer subject to non-U.S. income tax examinations for years before 2016. A reconciliation of the beginning and ending amount of uncertain tax positions (“UTP”) is as follows:
|  | 2022 |  |  | 2021 |
UTP at beginning of the year |  | $ | 415 |  |  | $ | 393 |
Gross increase to tax positions in current period |  |  | 7 |  |  |  | 3 |
Interest expense |  |  | 28 |  |  |  | 19 |
UTP at end of year |  | $ | 450 |  |  | $ | 415 |

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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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