INCOME TAXES

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 9 – INCOME TAXES

Pretax (loss) income resulting from domestic and foreign operations is as follows (in thousands):

	Three Months Ended September 30			Three Months Ended September 30,
	2021			2020
United States	$	(3,114	)	$	(4,211	)
Foreign		5,234			-
Total pretax book income, (loss)	$	2,120		$	(4,211	)

	Nine Months Ended September 30			Nine Months Ended September 30,
	2021			2020
United States	$	(8,541	)	$	(7,587	)
Foreign		5,817			-
Total pretax book loss	$	(2,724	)	$	(7,587	)

The Company recorded income tax expense of $3.9 million and zero tax for the nine months ended September 30, 2021 and September 30, 2020, respectively. The company recorded a significant tax impact of $2.2 million in second quarter of this year to reflect a discrete event directly pertaining to the tax impact on our UK deferred tax liability associated with the intangible assets acquired as part of the Sahara business combination, and the effect of a recent UK rate income tax rate change. Finance Bill 2021 (“the Bill”) provides for an increase in the UK statutory tax rate to 25% for taxpayers with profits over £250K beginning April 1, 2023. We expect this rate to apply to the earnings of our Sahara operations in the UK. The Bill received Royal Assent on June 10, 2021, and it is considered enacted on that date under U.S. GAAP. As such, we had to reflect the tax impact as a discrete event in our results. The year-to-date effective tax rate is (139.3)% due to there being no tax expense/benefit for the legacy Boxlight entities, but the Sahara entities are fully taxable.

The Company operates in the United States, United Kingdom, and other jurisdictions. Income taxes have been provided based upon the tax laws and rates of the countries in which operations are conducted and income is earned.

Prior to the Sahara acquisition, the Company had a net deferred tax asset position in the United States, the United Kingdom, and other jurisdictions, primarily driven by net operating losses. The recoverability of these deferred tax assets depends on the Company’s ability to generate taxable income in the jurisdiction to which the loss carryforward applies. The Company also depends on specific tax provisions in each jurisdiction that could impact utilization. The Company has evaluated both positive and negative evidence as to the ability of its legacy entities in each jurisdiction to generate future taxable income. Based on its history of cumulative losses in those jurisdictions, we believe it is appropriate to maintain a full valuation allowance on the Company’s net deferred tax asset at September 30, 2021 and December 31, 2020.

Due to the Sahara and Interactive Concepts acquisitions, the Company has recognized a net deferred tax liability for the acquired entities, primarily driven by acquired intangible assets for which it does not have tax basis in the jurisdictions in which operates (primarily the United Kingdom, the Netherlands, and the United States). The Company does not expect to qualify for any consolidated filing positions in any of these countries, so there is no ability to net the deferred tax liabilities of the Sahara companies against the deferred tax assets of the legacy Boxlight companies.

The tax years from 2016 to 2020 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company has not identified any uncertain tax positions at this time.

During the second quarter of 2021, the Company became aware of a potential state tax exposure for failure to file minimum tax returns in a state for several years. The Company has tentatively agreed to the proposed tax assessment, but it is appealing the associated interest and penalty assessment. The Company has recorded an exposure item of $82K for its best estimate of the amount for which it will settle the exposure. This amount includes $24K of income tax and $58K of penalties and interest.