Note 15 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 15 – Income Taxes

The Company is subject to income tax in multiple jurisdictions and the use of estimates is required to determine the provision for income taxes. For the years ended December 31, 2020, 2019 and 2018, the Company recorded an income tax provision of $12.1 million, $17.5 million and $15.1 million, respectively. The effective income tax rate for the years ended December 31, 2020, 2019 and 2018 was 19.2 percent, 21.6 percent and 16.4 percent, respectively.

The effective tax rate decreased by 2.4% for the year ended December 31, 2020 when compared to 2019 primarily due to an increase in tax benefits from the vesting of restricted stock and exercise of stock options and an increase in the research and development tax credit. 

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. The CARES Act was meant to infuse companies with various income and payroll tax cash benefits to ease the impact of the pandemic. A technical correction to the Tax Cuts and Jobs Act of 2017 was included in the CARES Act allowing qualified improvement property to claim bonus depreciation for respective assets placed in service in 2018 and 2019. The impact of the CARES Act to the Company was a $2.9 million reduction to income taxes payable and a corresponding increase to deferred tax liability. In addition, the Company has elected to defer deposits of the employer portion of the Social Security tax for the quarter ended March 31, 2020 through the quarter ended December 31, 2020. The Social Security taxes are being accrued for and will be paid in 2021.

The provision for income taxes is based on income before income taxes reported for financial statement purposes. The components of income before income taxes are as follows:

	Year Ended December 31,
(in thousands)	2020		2019		2018
Domestic	$	58,551	$	74,841	$	81,893
Foreign		4,394		6,352		9,762
Total	$	62,945	$	81,193	$	91,655

Significant components of the provision for income taxes for the following periods are as follows:

	Year Ended December 31,
(in thousands)	2020			2019			2018
Current:
Federal	$	2,128		$	6,991		$	(782	)
State		1,136			2,882			2,078
Foreign		1,241			1,544			1,810
Deferred
Federal		6,904			5,121			11,325
State		(431	)		269			538
Foreign		210			(809	)		(430	)
Valuation Allowance		890			1,540			528
Total	$	12,078		$	17,538		$	15,067

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

	Year Ended December 31,
	2020			2019			2018
Federal tax statutory rate		21.0	%		21.0	%		21.0	%
State tax (net of federal benefit)		2.1			2.1			2.0
Share based compensation		(1.3	)		(0.5	)		(2.8	)
Valuation allowance against deferred tax assets		2.0			1.4			0.7
Research and development credit		(3.7	)		(2.8	)		(2.5	)
Foreign rate differential		(0.8	)		(0.3	)		(0.1	)
Tax reserves		1.4			1.1			(0.1	)
Provision to return difference		(1.4	)		-			-
Miscellaneous		(0.1	)		(0.4	)		(0.5	)
Transition tax		-			-			(0.8	)
Revaluation of deferred tax liability		-			-			(0.5	)
Total		19.2	%		21.6	%		16.4	%

Significant components of deferred tax assets and liabilities are as follows:

	December 31,
(in thousands)	2020			2019
Deferred tax assets:
Accrued expenses	$	2,155		$	1,362
Leases		3,598			3,337
Stock-based compensation		3,356			3,325
Intangible assets		1,693			1,171
Inventories		172			169
Other assets		1,790			1,765
Net operating loss		6,647			6,513
Less valuation allowance		(9,138	)		(8,248	)
Total deferred tax assets		10,273			9,394
Deferred tax liabilities:
Depreciation		(32,671	)		(26,750	)
Goodwill		(7,858	)		(5,590	)
Leases		(3,598	)		(3,337	)
Total deferred tax liabilities		(44,127	)		(35,677	)
Net deferred tax liability	$	(33,854	)	$	(26,283	)

The Company has recorded no U.S. deferred taxes related to the undistributed earnings of its non-U.S. subsidiaries as of December 31, 2020. Such amounts are intended to be reinvested outside of the United States indefinitely. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings. As of December 31, 2020, the Company had accumulated undistributed earnings in non-U.S. subsidiaries of $15.8 million.

As of December 31, 2020, the Company had estimated net operating loss carry forwards of $6.6 million for tax purposes. The net operating losses relate to operations in Japan and Germany. Japan losses can be carried forward for up to ten years. The remaining Japan net operating losses begin to expire at various dates between 2021 and 2026. The Company’s Japan operations are taxed both by local authorities and in the U.S. Germany net operating losses may be carried forward without any time limitations but are limited to €1 million, plus 60 percent of taxable income exceeding €1 million.

The Company establishes valuation allowances for deferred tax assets when, after consideration of all positive and negative evidence, it is considered more-likely-than-not that a portion of the deferred tax assets will not be realized. The Company's valuation allowances of $9.1 million and $8.2 million at December 31, 2020 and 2019, respectively, reduce the carrying value of deferred tax assets associated with certain net operating loss carry forwards and other assets with insufficient positive evidence for recognition. The increase in the valuation allowance is primarily attributable to fluctuations in foreign currency and the net operating losses incurred in Germany in 2020.

The Company files a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state, or foreign income tax examinations by tax authorities for years before 2017.

The Company has liabilities related to unrecognized tax benefits totaling $4.8 million and $4.6 million at December 31, 2020 and 2019, respectively, that if recognized would result in a reduction of the Company’s effective tax rate. The liabilities are classified as other long-term liabilities in the accompanying consolidated balance sheets. The Company recognizes interest and penalties related to income tax matters in income tax expense and reports the liability in current or long-term income taxes payable as appropriate. Interest and penalties were immaterial for each of the years ended December 31, 2020, 2019 and 2018.

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

	December 31,
	2020			2019
Balance at beginning of period	$	4,598		$	4,096
Additions for tax positions of current year		324			592
Additions for tax positions of prior years		475			-
Decrease related to expiration of statutes of limitations		(567	)		(90	)
Balance at period end	$	4,830		$	4,598