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Note F - Income Taxes | 12 Months Ended
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Jun. 30, 2018
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | F . Income Taxes During fiscal 2018, we recorded U.S.-based domestic tax expense of $4.4 million. During fiscal 2017, we recorded U.S.-based domestic tax expense of $2.2 million. The provision for income taxes for the years ended June 30 consisted of the following (in thousands):
|  | 201 8 |  |  | 201 7 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | 2,141 |  |  | $ | 1,791 |
State |  |  | 52 |  |  |  | 90 |
Foreign |  |  | 976 |  |  |  | 646 |
|  |  | 3,169 |  |  |  | 2,527 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | 2,024 |  |  |  | 305 |
State |  |  | 134 |  |  |  | 44 |
Foreign |  |  | 235 |  |  |  | — |
|  |  | 2,393 |  |  |  | 349 |
Total provision for income taxes |  | $ | 5,562 |  |  | $ | 2,876 |
Net deferred tax assets and deferred tax liabilities as of June 30 were as follows (in thousands):
|  | 201 8 |  |  | 201 7 |
Deferred tax assets: |  |  |  |  |  |  |  |
Inventory capitalization |  | $ | 267 |  |  | $ | 438 |
Inventory reserves |  |  | 29 |  |  |  | 178 |
Pension liability |  |  | 121 |  |  |  | 241 |
Accrued bonus |  |  | — |  |  |  | 114 |
Net operating loss carry forward |  |  | 240 |  |  |  | 240 |
Deferred rent |  |  | 129 |  |  |  | 193 |
Accumulated depreciation and amortization |  |  | — |  |  |  | 8 |
Stock-based compensation |  |  | 155 |  |  |  | 195 |
Tax credit carry forward |  |  | 230 |  |  |  | 176 |
Accrued vacation expense |  |  | 70 |  |  |  | 111 |
Other, net |  |  | 84 |  |  |  | 256 |
Total gross deferred tax assets |  |  | 1,325 |  |  |  | 2,150 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Prepaid expenses |  |  | (101 | ) |  |  | (148 | )
Withholding taxes |  |  | (1,133 | ) |  |  | — |
Fixed Assets |  |  | (388 | ) |  |  | — |
Foreign inventory reserves |  |  | (235 | ) |  |  | — |
Deferred tax liabilities |  |  | (1,857 | ) |  |  | (148 | )
Valuation allowance |  |  | — |  |  |  | — |
Net deferred tax (liabilities) assets |  | $ | (532 | ) |  | $ | 2,002 |
As of June 30, 2018, we remeasured certain deferred tax assets and liabilities based on the newly enacted 21% tax rate. The amount we recorded from remeasuring our deferred tax balance was $212,000 and was treated as a discrete expense for the year ended June 30, 2018. At June 30, 2018, we had state tax net operating loss carry forwards of approximately $3.4 million. Under California tax law, net operating loss deductions were suspended for tax years beginning in 2008, 2009, 2010 and 2011 and the carry forward periods of any net operating losses not utilized due to such suspension were extended. Our state tax loss carry forwards will begin to expire in fiscal 2032, unless used before their expiration. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the annual use of the net operating loss carry forwards and research and development tax credits could be limited by any greater than 50% ownership change during any three -year testing period. We did not have any ownership changes that met this criterion during the fiscal years ended June 30, 2018 and June 30, 2017. We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended June 30, 2015 and forward are subject to examination by the U.S. tax authorities and our years for the fiscal year ended June 30, 2007 and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended June 30, 2015 and forward are subject to examination by the Switzerland tax authorities. NAIE’s effective tax rate for Swiss federal, cantonal and communal taxes is approximately 20.2%. NAIE had pretax net income of $6.0 million for the fiscal year ended June 30, 2018. A reconciliation of income tax provision computed by applying the statutory federal income tax rate of 28.06% for fiscal 2018 and 34% for fiscal 2017 to net income before income taxes for the year ended June 30 is as follows (dollars in thousands):
|  | 201 8 |  |  | 201 7 |
Income taxes computed at statutory federal income tax rate |  | $ | 2,969 |  |  | $ | 3,438 |
State income taxes, net of federal income tax expense |  |  | 131 |  |  |  | 95 |
Expenses not deductible for tax purposes |  |  | (90 | ) |  |  | 29 |
Foreign tax rate differential |  |  | (473 | ) |  |  | (613 | )
Tax Act |  |  | 3,025 |  |  |  | — |
Other, net |  |  | — |  |  |  | (73 | )
Income tax provision as reported |  | $ | 5,562 |  |  | $ | 2,876 |
Effective tax rate |  |  | 52.4 | % |  |  | 28.4 | %
The effective tax rate for the year ended June 30, 2018 was 52.4%. In comparison, the effective tax rate for the year ended June 30, 2017 was 28.4%. The effective tax rate for the year ended June 30, 2018 differs from the estimated U.S. federal statutory rate of 28.06% primarily due to the impact of the Act’s required one -time transition tax and the reevaluation of our deferred taxes, offset by the favorable impact of foreign earnings taxed at less than the U.S. statutory rate. We expect our U.S. federal statutory rate to be 21% for fiscal years beginning after June 30, 2018. As part of the Act, we are required to recognize a one -time deemed repatriation transition tax based on our total post- 1986 earnings and profits (E&P) from our Swiss subsidiary, NAIE. This accumulated E&P amount has historically been considered permanently reinvested thereby allowing us to defer recognizing any U.S. income tax on the amount. As a result of the Act we recorded a provisional amount for our one -time transition tax liability resulting in an increase in income tax expense during the year ended June 30, 2018 of $1.7 million, which was treated as a discrete expense. In accordance with the provisions of the Act, we will elect to pay this tax over an eight -year period. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. We no longer consider undistributed foreign earnings from NAIE as of December 31, 2017 as indefinitely reinvested. As a result, we have recorded $1.1 million in estimated foreign withholding taxes on the amounts deemed repatriated under the Act, which was also treated as a discrete expense during the period. We consider earnings accumulated subsequent to December 31, 2017 as indefinitely reinvested.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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