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INCOME TAXES | 9 Months Ended
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Sep. 30, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Pretax (loss) income resulting from domestic and foreign operations is as follows (in thousands):
| Three Months Ended September 30, |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
United States | $ | (4,681) |  |  | $ | (8,041) |  |  | $ | (11,748) |  |  | $ | (11,761) |
Foreign | 1,608 |  |  | (6,636) |  |  | 887 |  |  | (6,345) |
Total pretax book loss | $ | (3,073) |  |  | $ | (14,677) |  |  | $ | (10,861) |  |  | $ | (18,106) |
The Company recorded income tax benefit of $12 thousand and income tax expense of $3.1 million for the three months ended September 30, 2024 and 2023, respectively, and income tax expense of $767 thousand and $3.4 million for the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate was (7.1)% and (18.7)% for the nine months ended September 30, 2024 and September 30, 2023. The negative year to date effective tax rate is due to the Company paying income taxes in various jurisdictions while incurring a worldwide net loss. The decrease in income tax expense year-over-year is primarily due to an increase in the forecasted worldwide net loss for the nine months ended September 30, 2024 as compared to the prior year. The Company operates in the United States, United Kingdom, and other jurisdictions. Income taxes have been provided based upon the tax laws and rates of the countries in which operations are conducted and income is earned. The legacy Boxlight entities are in a net deferred tax asset position in the United States, the United Kingdom, and other jurisdictions, primarily driven by its net operating losses. The recoverability of these deferred tax assets depends on the Company’s ability to generate taxable income in the jurisdiction to which the carryforward applies. It also depends on specific tax provisions in each jurisdiction that could impact utilization. For example, in the United States, a change in ownership, as defined by federal income tax regulations, could significantly limit the Company’s ability to utilize its U.S. net operating loss carryforwards. Additionally, because U.S. tax laws limit the time during which the net operating losses generated prior to 2020 may be applied against future taxes, if the Company fails to generate U.S. taxable income prior to the expiration dates, the Company may not be able to fully utilize the net operating loss carryforwards to reduce future income taxes. The Company has evaluated both positive and negative evidence as to the ability of its legacy entities in each jurisdiction to generate future taxable income. Based on its long history of cumulative losses in those jurisdictions, it believes it is appropriate to maintain a full valuation allowance on its net deferred tax asset at September 30, 2024 and December 31, 2023. The Company completed its IRC Sec. 382 analysis during the second quarter of 2024 and determined that it underwent an ownership change. This caused a limit on the net operating losses generated before 2020. Due to the full valuation allowance on net operating loss carryovers, there is no impact to the interim financial statements as a result of this limitation. The Sahara entities have recorded a net deferred tax liability, which is primarily driven by the net deferred tax liability on the intangibles for which it does not have tax basis. The Company does not qualify for any consolidated filing positions in any of these countries, so there is no ability to net the deferred tax liabilities of the Sahara companies against the deferred tax assets of the legacy Boxlight companies. The tax years from 2010 to 2023 remain open to examination in the U.S. federal jurisdiction and in most U.S. state jurisdictions. The tax years from 2021 to 2023 remain open to examination in the U.K. Statutes of limitations vary in other immaterial jurisdictions. During the second quarter of 2021, the Company became aware of a potential state tax exposure for failure to file minimum tax returns in a state for several years. The Company has recorded an exposure item of $95 thousand for its best estimate of the amount for which it will settle the exposure. This amount includes $24 thousand of income tax and $71 thousand of penalties and interest. The Company has not identified any other material uncertain tax positions during the three months ended September 30, 2024. The Organization for Economic Co-operation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15%. Numerous countries, including European Union member states, have enacted or are expected to enact legislation to be effective as early as January 1, 2024, with general implementation of a global minimum tax rate by January 1, 2025. We are currently evaluating the potential impact of the rules on our consolidated financial statements and related disclosures.

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