Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(13)  INCOME TAXES

We are subject to Federal and certain state income taxes. In addition, we are taxed in certain foreign countries.

Earnings before income taxes was as follows:

	Years Ended December 31,
	2022		2021
Domestic	$	9,575	$	7,372
Foreign		570		1,030
Total	$	10,145	$	8,402

Income tax expense was as follows:

	Years Ended December 31,
	2022			2021
Current
Domestic – Federal	$	2,892		$	1,208
Domestic – state		263			140
Foreign		267			259
Total	$	3,422		$	1,607
Deferred
Domestic – Federal	$	(1,344	)	$	(387	)
Domestic – state		(190	)		(31	)
Foreign		(204	)		(70	)
Total		(1,738	)		(488	)
Income tax expense	$	1,684		$	1,119

Deferred income taxes reflect the net tax effect of net operating loss and tax credit carryforwards as well as temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a summary of the significant components of our deferred tax assets and liabilities at December 31, 2022 and 2021:

	December 31,
	2022			2021
Deferred tax assets:
Capitalized research and development costs	$	1,260		$	-
Operating lease liabilities		1,125			1,407
Inventories		602			387
Accrued vacation pay and stock-based compensation		465			354
Net operating loss (state and foreign)		285			205
Allowance for doubtful accounts		43			45
Accrued warranty		54			31
Acquisition costs		46			9
Tax credit carryforwards		89			17
Other		-			49
Total		3,969			2,504
Valuation allowance		(227	)		(64	)
Deferred tax assets		3,742			2,440
Deferred tax liabilities:
Net intangible assets		(1,961	)		(2,381	)
Right-of-use assets		(996	)		(1,245	)
Depreciation of property and equipment		(385	)		(193	)
Other		(120	)		-
Deferred tax liabilities		(3,462	)		(3,819	)
Net deferred tax assets (liabilities)	$	280		$	(1,379	)

The net change in the valuation allowance for the years ended December 31, 2022 and 2021 was an increase of $163 and a decrease of $105, respectively. In assessing the ability to realize the deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the total deferred tax assets, we will need to generate future taxable income prior to the expiration of net operating loss and tax credit carryforwards which expire in various years through 2040. 

An analysis of the effective tax rate for the years ended December 31, 2022 and 2021 and a reconciliation from the expected statutory rate of 21% is as follows:

	Years Ended December 31,
	2022			2021
Expected income tax expense at U.S. statutory rate	$	2,131		$	1,764
Increase (decrease) in tax from:
Acquisition costs		-			163
Dividend from foreign subsidiaries		127			146
NOL carryforwards utilized		(80	)		56
Restricted stock compensation		77			(126	)
Global intangible low taxed income		66			28
Nondeductible expenses		11			8
Current year tax credits (foreign and research)		(465	)		(386	)
Domestic tax benefit, net of Federal benefit		87			153
Changes in valuation allowance		163			(105	)
Foreign income tax rate differences		147			9
Section 250 foreign derived intangible income deduction		(563	)		(599	)
Other		(17	)		8
Income tax expense	$	1,684		$	1,119

In accounting for income taxes, we follow the guidance in ASC Topic 740 (Income Taxes) regarding the recognition and measurement of uncertain tax positions in our financial statements. Recognition involves a determination of whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information. Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. At December 31, 2022 and 2021, we did not have an accrual for uncertain tax positions.

We file U.S. income tax returns and multiple state and foreign income tax returns. With few exceptions, the U.S. and state income tax returns filed for the tax years ended December 31, 2019 and thereafter are subject to examination by the relevant taxing authorities.