Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

12. Income Taxes

The Company's provision (benefit) for income taxes comprises the following:

	For the year ended December 31,
	2022			2021		2020
Current:
Federal	$	13,154,619		$	19,211,782	$	5,111,667
State and local		897,285			513,753		447,965
Foreign		3,800			13,994		—
Total current provision		14,055,704			19,739,529		5,559,632
Deferred:
Federal		(3,818,283	)		89,947		11,375,962
State and local		(9,495	)		31,499		230,987
Foreign		—			—		—
Total deferred (benefit) provision		(3,827,778	)		121,446		11,606,949
Total provision	$	10,227,926		$	19,860,975	$	17,166,581

The Company’s deferred tax assets and liabilities comprise the following:

	As of December 31,
	2022			2021
Deferred income tax assets:
State net operating losses	$	1,247,826		$	1,293,912
Inventory		336,333			184,046
Reserves and accruals		569,290			741,684
Amortization of intangible assets		24,532			50,107
Share-based compensation		510,058			280,396
Deferred revenue		66,011			702,617
Capitalized R&D		4,194,106			—
Lease liability		443,902			570,446
Other		380,162			267,050
Deferred income tax assets		7,772,220			4,090,258
Less: valuation allowance		(985,783	)		(1,022,191	)
Deferred income tax assets, net of valuation allowance	$	6,786,437		$	3,068,067
Deferred income tax liabilities:
Amortization of goodwill		(192,083	)		(197,245	)
Property, plant and equipment		(59,727	)		(156,289	)
Other		(284,242	)		(291,926	)
Deferred income tax asset, net	$	6,250,385		$	2,422,607

The recognition of a valuation allowance for deferred taxes requires management to make estimates and judgments about the Company’s future profitability which is inherently uncertain. The Company assesses all available positive and negative evidence to determine if its existing deferred tax assets are realizable on a more-likely-than-not basis. In making such assessment, the Company considered the reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operating results. The ultimate realization of a deferred tax asset is ultimately dependent on the Company's generation of sufficient taxable income within the available net operating loss carryback and/or carryforward periods to utilize the deductible temporary differences. As of December 31, 2022, the Company has a valuation allowance on certain state and local net operating losses which the Company determined were not realizable on a more-likely-than-not basis. The Company's valuation allowance did not change materially from prior years. 

Effective beginning in fiscal 2022, the U.S. Tax Cuts and Job Act of 2017 ("TCJA") requires the Company to deduct U.S. and international research and development expenditures for tax purposes over 5 to 15 years, instead of in the current fiscal year. The Company concurrently records a deferred tax benefit for the future amortization of the research and development ("R&D") for tax purposes. The requirement to expense R&D as incurred is unchanged for U.S. GAAP purposes and the impact to pre-tax R&D expense is not affected by this provision.

The benefit for income taxes differs from the expected amount calculated by applying the Company's statutory rate to the income or loss before benefit for income taxes as follows:

	As of December 31,
	2022			2021			2020
Statutory federal income tax rate		21.0	%		21.0	%		21.0	%
State and local taxes		1.6	%		0.5	%		0.7	%
Change in fair value of common stock warrant		(0.2	)%		—			1.0	%
Section 162(m) limitation		0.7	%		0.5	%		0.5	%
Other		0.1	%		0.2	%		0.2	%
Effective tax rate		23.2	%		22.2	%		23.4	%

For the years ended December 31, 2022 and 2021, the Company’s effective tax rate differs from the statutory rate of 21% primarily as a result of certain permanent differences including non-deductible executive compensation under IRC Section 162(m) and state and local taxes. For the year ended December 31, 2020, the Company's effective tax rate differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m), a non-taxable adjustment for the fair market value of the Warrant, and state and local taxes.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:

	For the year ended December 31,
	2022			2021		2020
Balance at beginning of year	$	5,602,587		$	5,591,587	$	5,649,188
Tax positions related to the current and prior years:
Additions		—			11,000		—
Reductions		(68,792	)		—		(57,601	)
Settlements		—			—		—
Lapses in applicable statutes of limitation		(430,247	)		—		—
Balance at the end of the year	$	5,103,548		$	5,602,587	$	5,591,587

Included in the balance of unrecognized tax benefits as of December 31, 2022, are potential benefits of $5.1 million that, if recognized, would affect the effective tax rate. The total amount accrued for interest and penalties as of  December 31, 2022 and  December 31, 2021, was $72,000 and $95,000, respectively. For the years ended  December 31, 2022 and  December 31, 2021, the Company recorded an income tax benefit of $23,000 and an income tax expense of $30,000, respectively, related to the accrual of interest and penalties. There are no uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized benefits will significantly increase or decrease within twelve months from December 31, 2022.

The Company files federal income tax returns and income tax returns in various state and local tax jurisdictions. The federal tax years open to examination are 2019 to 2022. The Company's state and local tax years that are open to tax examination are generally 2018 to 2022.