Income Taxes

Income (loss) before income taxes is as follows:

	Year ended December 31,
	2019		2018		2017
	(in thousands)

United States	$	17,989	$	22,256	$	17,778
Foreign		3,690		6,188		3,328

Total	$	21,679	$	28,444	$	21,106

Certain of our foreign subsidiaries are included in the U.S. tax return as branches but are included as foreign for purposes of the table above.

The provision (benefit) for income taxes is as follows:

	Year ended December 31,
	2019		2018			2017
			(in thousands)
Current:
Federal	$	1,501	$	4,262		$	2,451
State		304		673			292
Foreign		1,116		2,718			886

		2,921		7,653			3,629
Deferred:
Federal		538		(1,512	)		(268	)
State		144		(145	)		390
Foreign		142		(495	)		178

		824		(2,152	)		300

Provision for income taxes	$	3,745	$	5,501		$	3,929

We have reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open to examination by a taxing authority. As of

December

31,

2019,

the gross amount of unrecognized tax benefits exclusive of interest and penalties was

$0.8

million, which

may

increase within the

twelve

months ending

December

31,

2020.

We remain subject to examination until the statute of limitations expires for each respective tax jurisdiction. The statute of limitations will be open with respect to these tax positions through

2027.

A reconciliation of beginning and ending amount of our unrecognized tax benefits is as follows:

	2019		2018		2017
	(in thousands)
Unrecognized tax benefits at the beginning of year	$	711	$	525	$	390
Additions for tax positions of current year		74		73		83
Additions for tax positions of prior years		63		113		57
Reductions for settlements with taxing authorities.		-		-		-
Reductions for lapses of the applicable statutes of limitations		-		-		(5	)
Unrecognized tax benefits at the end of the year	$	848	$	711	$	525

Deferred taxes are attributable to the following temporary differences:

	As of December 31,
	2019			2018
	(in thousands)
Deferred tax assets:
Inventory	$	840		$	976
Net operating loss carryforwards		1,289			1,421
Tax credit carryforwards		944			828
Capital loss carryforwards		277			279
Reserves and accruals		787			802
Operating lease liabilities		3,343			-
Intangible assets		2,764			2,737
Stock options		342			373
Other		20			91

Total deferred tax assets		10,606			7,507

Deferred tax liabilities:
Property and equipment		(1,520	)		(1,416	)
Goodwill		(3,459	)		(3,023	)
Operating lease right-of-use assets		(3,224	)		-
Foreign branch deferred offset		(923	)		(1,032	)
Other		(187	)		(50	)

Total deferred tax liabilities		(9,313	)		(5,521	)

Net deferred tax assets before valuation allowance		1,293			1,986

Valuation allowance		(1,388	)		(1,255	)

Net deferred tax liabiltity	$	(95	)	$	731

Deferred tax classification
Long-term deferred tax asset	$	1,084		$	1,215
Long-term deferred tax liability		(1,179	)		(484	)

Net long-term deferred tax liability	$	(95	)	$	731

2017,

we increased our valuation by a net

$0.2

million mainly attributable to Massachusetts credit carryforwards. In

2018,

we decreased our valuation allowance by a net

$0.7

million mainly attributable to Australian net operating loss and capital loss carry forwards that are now expected to be realized. In

2019,

we increased our valuation allowance by

$0.1

million mainly attributable to Australian net operating loss carry forwards and Massachusetts credit carryforwards.

As of

December 31, 2019,

we have provided a valuation allowance of

$1.4

million for deferred tax assets primarily related to Australian net operating loss and capital loss carry forwards and Massachusetts tax credit carry forwards that are

not

expected to be realized. The valuation allowance against our deferred tax assets

may

require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance.

Realization of our deferred tax assets is dependent on our generating sufficient taxable income in future periods. Although we believe it is more likely than

not

that future taxable income will be sufficient to allow us to recover substantially all of the value of our deferred tax assets remaining after we apply the valuation allowances, realization is

not

assured and future events could cause us to change our judgment. In the event that actual results differ from our estimates, or we adjust these estimates in the future periods, further adjustments to our valuation allowance

may

be recorded, which could materially impact our financial position and net income (loss) in the period of the adjustment.

As of

December

31,

2019,

we have net operating loss carryforwards in Australia of

$1.2

million that do

not

expire, in France of

$2.5

million that do

not

expire, in Spain of

$0.9

million that do

not

expire, and in Norway of

$0.1

million that do

not

expire. We have a capital loss carryforward in Australia of

$0.9

million that does

not

expire. We also have state tax credit carryforwards of approximately

$1.5

million that are available to reduce future tax liabilities, which begin to expire in

2021,

or can be carried forward indefinitely.

December 2018,

we reevaluated our international operations and as a result, are

longer indefinitely reinvested with respect to undistributed earnings from our German and Australian subsidiaries. There was

material deferred tax expense recorded for foreign and state tax costs associated with the future remittance of these undistributed earnings. We remain permanently reinvested with respect to undistributed earnings from our other foreign subsidiaries. It is

not

practicable to estimate the amount of deferred tax liability, if any, with respect to these permanently reinvested undistributed earnings.

A reconciliation of the federal statutory rate to our effective tax rate is as follows:

	2019			2018			2017

Federal statutory rate		21.0	%		21.0	%		35.0	%
State tax, net of federal benefit		1.9	%		1.4	%		1.7	%
Effect of foreign taxes		2.1	%		3.8	%		(0.6%	)
Federal tax on foreign income		0.8	%		1.4	%		1.7	%
Valuation allowance		0.6	%		(3.2%	)		0.1	%
Foreign deferred tax liability offset		(0.4%	)		(0.3%	)		(0.2%	)
Manufacturing deduction		0.0	%		0.0	%		(1.5%	)
Research & development tax credits		(1.2%	)		(0.7%	)		(0.6%	)
Stock options		(8.8%	)		(3.3%	)		(15.8%	)
Uncertain tax positions		1.0	%		0.8	%		0.6	%
Other permanent differences		0.5	%		(0.7%	)		1.0	%
Change in tax laws		0.0	%		0.0	%		2.9	%
Deferred tax remeasurement		0.0	%		0.0	%		(5.0%	)
Other		(0.2%	)		(0.9%	)		(0.7%	)

Effective tax rate		17.3	%		19.3	%		18.6	%

August 2018,

the German tax authority commenced an audit of our German subsidiary for the tax years

2013

through

2016.

We expect to conclude this audit in early

2020

and pay an immaterial amount of additional German tax. We are

not

currently under audit in any other tax jurisdictions.

As of

December

31,

2019,

a summary of the tax years that remain subject to examination in our most significant tax jurisdictions are:

United States	2016 and forward
Foreign	2012 and forward