Note 5 - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

5.  Income Taxes

The provision for income tax expense is summarized as follows (in thousands):

	Year Ended December 31,
	2012			2011
Current	$	744		$	362
Deferred		(194	)		–
	$	550		$	362

The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows (in thousands):

	Year Ended December 31,
	2012			2011
Provision for income taxes at federal statutory rate, net of foreign tax	$	1,232		$	883
State income taxes, net of federal benefit		134			102
Permanent differences		(31	)		(26	)
Change in valuation allowance		(1,247	)		(780	)
International tax provisions		333			112
Federal Alternative Minimum Tax		61			35
Change in Tax Reserve		28			22
Other		40			14
Provision for income taxes	$	550		$	362

Deferred taxes consist of the following (in thousands):	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carry forwards	$	3,671		$	4,989
Deferred revenue		93			128
Allowance for doubtful accounts and other receivable		33			15
Share-based compensation expense		659			573
Foreign subsidiaries		201			-
Depreciation		171			66
Acquisition costs		51			50
Other		175			174
Valuation allowance		(4,248	)		(5,495	)
Total deferred tax assets		806			500
Deferred tax liabilities:
Goodwill		134			117
Foreign subsidiaries		7			-
Capitalized software development costs		471			383
Total deferred tax liabilities		612			500
Net deferred taxes	$	194		$	–

At December 31, 2012, the Company has net operating loss carry-forwards (NOLs) of $3.6 million, related to the PIA Acquisition available to reduce future federal taxable income.  Section 382 of the Internal Revenue Code restricts the annual utilization of the NOLs incurred prior to a change in ownership. Such a change in ownership had occurred in 1999.  The Company may utilize $657,500 of the PIA NOLs per year through the year 2018.

In addition, the Company incurred NOLs related to its prior year losses totaling $6.0 million of which:

$2.5 expires in 2026,

$2.9 expires in 2027,

$0.3 expires in 2028, and

$0.2 expires in 2029.

The Company has established over time and currently has a valuation allowance reserve of approximately $4.2 million against its deferred tax asset balance at December 31, 2012.  The reduction of that reserve and the corresponding realization of these deferred tax assets is contingent upon the realization of future taxable profits over several years.  The Company does not believe such future profits are certain, and thus the requirements of ASC 740-10 for reducing that reserve are not currently met, due to the subjective nature of forecasting profits and the risks the Company faces on a daily basis as noted in Item 1A of this report, including (without limitation) the risks related to dependence on the trend of both clients and retailers towards outsourcing merchandising and marketing services, the competitive nature of the this industry, economic and retail uncertainty, reliance on the Internet and dependence upon cost of services provided by affiliates.

The Company does not provide currently for U.S. income taxes on the undistributed earnings of its profitable foreign subsidiaries since, at the present time, management expects any earnings to be reinvested in the foreign subsidiaries and not distributed.  Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes, which could potentially be offset by foreign tax credits.  Distribution of those earnings can also subject the Company to related withholding taxes payable to various non-U.S. jurisdictions.  Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculations.

ASC-740-10 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise's financial statements in accordance with ASC-740-10. Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of ASC-740-10 and in subsequent periods. ASC-740-10 is effective for fiscal years beginning after December 15, 2006 and the provisions of ASC-740-10 will be applied to all tax positions upon initial adoption of the Interpretation.

The Company adopted provisions of ASC-740-10, Accounting for Uncertainty in Income Taxes, on January 1, 2007.  A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Year Ended December 31,
	2012		2011
Beginning Balance	$	65	$	43
Additions for tax positions of prior years		28		22
Ending Balance	$	93	$	65

ASC-740-10 requires that interest and penalties that the tax law requires to be paid on the underpayment of taxes should be accrued on the difference between the amount claimed or expected to be claimed on the return and the tax benefit recognized in the financial statements. The Company's policy is to record this interest and penalties as additional tax expense.

SPAR and its subsidiaries file numerous consolidated, combined and separate company income tax returns in the U.S. Federal jurisdiction and in many U.S. state and foreign jurisdictions. With few exceptions, SPAR is subject to U.S. Federal, state and local income tax examinations for the years 2008 through the present. However, tax authorities have the ability to review years prior to the position taken by the Company to the extent that SPAR utilized tax attributes carried forward from those prior years.

In management's view, the Company's tax reserves at December 31, 2012, totaling $93,000 for potential domestic state tax liabilities were sufficient to meet the requirements of ASC-740-10. The Company has evaluated the tax liabilities of its international subsidiaries and does not believe a reserve is necessary at this time.

Details of the Company's tax reserves at December 31, 2012, are outlined in the table below (in thousands):

	Taxes		Interest		Penalty		Total Tax Liability
Domestic
State	$	73	$	15	$	6	$	93
Federal		–		–		–		–
International		–		–		–		–
Total reserve	$	73	$	15	$	6	$	93