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Income Taxes | 12 Months Ended
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Dec. 31, 2015
Income Taxes [Abstract] |
Income Taxes | NOTE 11 - INCOME TAXES Income tax expense from continuing operations consists of the following:
|  | Year Ended December 31
|  | 2015 |  | 2014 |  | 2013
Currently payable income taxes: |  |  |  |  |  |  |  |  |
Federal |  | $ | (3,142,000) |  | $ | 328,000 |  | $ | 2,114,000
State |  |  | (85,000) |  |  | (12,000) |  |  | 297,000
Foreign |  |  | 254,000 |  |  | 113,000 |  |  | (32,000)
|  |  | (2,973,000) |  |  | 429,000 |  | $ | 2,379,000
Deferred income taxes (benefit): |  |  |  |  |  |  |  |  |
Federal |  | $ | 2,191,000 |  | $ | 761,000 |  | $ | (303,000)
State |  |  | 38,000 |  |  | 40,000 |  |  | 18,000
Foreign |  |  | (9,000) |  |  | (11,000) |  |  | (33,000)
|  |  | 2,220,000 |  |  | 790,000 |  |  | (318,000)
|  | $ | (753,000) |  | $ | 1,219,000 |  | $ | 2,061,000
Austin Taylor Communications, Ltd. operates in the United Kingdom (U.K.) and is subject to U.K. rather than U.S. income taxes. Austin Taylor had pretax loss es of $1,742,000, $389,000 and $428,000 in 2015, 2014 and 2013 respectively. At the end of 2015, Austin Taylor’s net operating loss carry-forward was $8,077,000. T he Company remains uncertain that it will be able to generate the future income needed to realize the tax benefit of the carry-forward. Accordingly, the Company has continued to maintain its deferred tax valuation allowance against any potential carry-forward benefit from Austin Taylor. Transition Networks EMEA, Ltd. operates in the U.K. and is subject to U.K. rather than U.S. income taxes. Transition Networks EMEA, Ltd. had pretax income of $558,000 in 2015 and pretax losses of $54,000 and $2,754,000 in 2014 and 2013, respectively. Austin Taylor's net operating loss provided group relief to Transition Networks EMEA, Ltd. during 2015. At the end of 2015, Transition Networks EMEA, Ltd.’s net operating loss carry-forward was $0. In 2007, Transition Networks China began operations in China and is subject to Chinese taxes rather than U.S. income taxes. Transition Networks China had pretax loss of $29,000 in 2015 and pretax income of $345,000 and $341,000 in 2014 and 2013, respectively. At the end of 2015, Transition Networks China's net operating loss carry-forward was $374,000. Due to the history of losses in China the Company remains uncertain that it will be able to generate the future income needed to realize the tax benefit of the carry-forward. Accordingly, the Company has continued to maintain its deferred tax valuation reserve against the potential carry-forward benefit. Transition Networks China ceased operations in 2014 and incurred minor non-operating expenditures in 2015 to close the operations. After 2015, Transition Networks China will no longer have any operational activity. Suttle Costa Rica operates in Costa Rica and is subject to Costa Rica income taxes. In 2005, the Board of Directors of Suttle Costa Rica declared a dividend in the amount of $3,500,000 payable to the Company. The dividend and related “dividend reinvestment plan” qualify under I nternal R evenue C ode Sec. 965, which allows the Company to receive an 85% dividend-received deduction if the amount of the dividend is reinvested in the United States pursuant to a domestic reinvestment plan. The Company made the required qualified capital expenditures in 2006. It is the Company’s intention to maintain the remaining undistributed earnings in its Costa Rica subsidiary to support continued operations there. No deferred taxes have been provided for the undistributed earnings. As of December 31, 2015, the amount of unremitted earnings outside of the United States was not significant to the Company’s liquidity and was available to fund investments abroad. Suttle Costa Rica had pretax income of $446,000, $321,000 and $152,000 in 2015, 2014 and 2013 respectively. At the end of 2015, Suttle Costa Rica’s net operating loss carry-forward was $0. The provision for income taxes for continuing operations varied from the federal statutory tax rate as follows:
|  | Year Ended December 31
|  | 2015 |  | 2014 |  | 2013
Tax at U.S. statutory rate |  | 35.0% |  | 35.0% |  | 35.0%
Surtax exemption |  | (1.1) |  | (0.7) |  | (5.4)
State income taxes, net of federal benefit |  | 0.6 |  | 1.0 |  | 19.1
Foreign income taxes, net of |  |  |  |  |  |
foreign tax credits |  | (3.6) |  | 7.8 |  | 3.3
Impairment of goodwill |  | - |  | - |  | 116.2
Other nondeductible items |  | 0.0 |  | 3.1 |  | 4.9
Effect of (decrease) increase in uncertain tax positions |  | (1.4) |  | (10.2) |  | 7.3
Federal credits |  | 15.1 |  | - |  | -
Change in valuation allowance |  | (35.2) |  | - |  | -
Other |  | (2.2) |  | 2.3 |  | 6.4
Effective tax rate |  | 7.2% |  | 38.3% |  | 186.8%
Deferred tax assets and liabilities as of December 31 related to the following:
|  | 2015 |  |  | 2014
Deferred tax assets: |  |  |  |  |
Allowance for doubtful accounts | $ | 41,000 |  | $ | 4,000
Inventory |  | 2,016,000 |  |  | 2,779,000
Accrued and prepaid expenses |  | 440,000 |  |  | 594,000
Domestic net operating loss carry-forward |  | 1,208,000 |  |  | -
Long-term compensation plans |  | 351,000 |  |  | 380,000
Nonemployee director stock compensation |  | 554,000 |  |  | 403,000
Other stock compensation |  | 195,000 |  |  | 118,000
Foreign net operating loss carry-forwards and credits |  | 2,008,000 |  |  | 1,743,000
Federal and state credits |  | 927,000 |  |  | -
Other |  | 30,000 |  |  | -
Gross deferred tax assets |  | 7,770,000 |  |  | 6,021,000
Valuation allowance |  | (5,668,000) |  |  | (1,734,000)
Net deferred tax assets |  | 2,102,000 |  |  | 4,287,000
Deferred tax liabilities |  |  |  |  |
Depreciation |  | (2,141,000) |  |  | (2,110,000)
Intangible assets |  | (22,000) |  |  | (18,000)
Net deferred tax liability |  | (2,163,000) |  |  | (2,128,000)
Total net deferred tax (liability) asset | $ | (61,000) |  | $ | 2,159,000
The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ending December 31, 2015. Such objective evidence limits the ability to consider other subjective evidence such as the projections for future growth. On the basis of this evaluation, as of December 31, 2015, a valuation allowance of $5,668,000 has been recorded to reflect the portion of the deferred tax asset that is more likely than not to be realized. The amount of deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth. At December 31, 2015, the Company has a federal net operating loss carryforward from 2015 activity of approximately $3,647,000 that is available to offset future taxable income and begins to expire in 2035. During 2015, the Company engaged in a research and development tax credit study for the tax years 2011 to 2014. As a result of this study, the Company claimed $1,554,000 of federal and $1,024,000 of state research and development credits. The Company amended prior year tax returns to claim these credits and offset prior year taxes paid. Credits not utilized to reduce taxes are available to be carried forward. At December 31, 2015, the Company has an estimated federal research and development credit carryforward of approximately $496,000 and a state research and development credit carryforward of approximately $594,000. The Company assesses uncertain tax positions in accordance with ASC 740. Under this method, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. Changes in the Company’s uncertain tax positions are summarized as follows:
|  | 2015 |  | 2014 |  | 2013
Uncertain tax positions – January 1 | $ | 75,000 | $ | 240,000 | $ | 153,000
Gross increases - tax positions in prior period |  | 142,000 |  | 0 |  | 0
Gross decreases - tax positions in prior period |  | 0 |  | (73,000) |  | 0
Gross increases - current period tax positions |  | 0 |  | 0 |  | 158,000
Settlements |  | 0 |  | (85,000) |  | (5,000)
Expiration of statute of limitations |  | 0 |  | (7,000) |  | (66,000)
Uncertain tax positions – December 31, 2015 | $ | 217,000 | $ | 75,000 | $ | 240,000
Included in the balance of uncertain tax positions at December 31, 2015 are $220,000 of tax benefits that if recognized would affect the tax rate. There are no expected significant changes in the Company’s uncertain tax positions in the next twelve months. The Company’s income tax liability accounts included accruals for interest and penalties of $4,000 at December 31, 2015. The Company’s 2015 income tax expense decreased by $2,000 due to net decreases for accrued interest and penalties. The Company’s federal and state tax returns and tax returns it has filed in Costa Rica and the United Kingdom are open for review going back to the 20 12 tax year.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 + Details
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