INCOME TAXES

9 Months Ended

Sep. 30, 2022

INCOME TAXES

INCOME TAXES

NOTE 11 – INCOME TAXES

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

	Three Months		Three Months
	Ended		Ended
	September 30		September 30,
	2022		2021
United States	$	3,320	$	(3,114)
Foreign		305		5,234
Total pretax book income	$	3,625	$	2,120

	Nine Months Ended		Nine Months Ended
	September 30		September 30,
	2022		2021
United States	$	(589)	$	(8,541)
Foreign		(661)		5,817
Total pretax book loss	$	(1,250)	$	(2,724)

The Company recorded income tax expense of $520 thousand and $1.4 million for the three months ended September 30, 2022 and September 30, 2021, respectively and income tax expense of $475 thousand of $3.9 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. The year-to-date effective tax rate is 38% due to there being no material tax expense/benefit for the legacy Boxlight entities, due to their valuation allowance position, while the Sahara entities are fully taxable.

The decrease in tax expense year-over-year is largely due to foreign pretax book loss for the nine months ended September 30, 2022 as compared to foreign pretax income for the nine months ended September 30, 2021, as well as the impact of a significant tax rate change in the UK on the Company’s deferred tax liability that was recorded in the three months ended September 30, 2021.

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.

The legacy Boxlight entities are in a net deferred tax asset position in the United States, the United Kingdom, and other jurisdictions, primarily driven by the aforementioned 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 carryforward applies. It also depends on specific tax provisions in each jurisdiction that could impact utilization. For example, in the United States, a change in ownership, as defined by federal income tax regulations, could significantly limit the Company’s ability to utilize its U.S. net operating loss carryforwards. Additionally, because U.S. tax laws limit the time during which the net operating losses generated prior to 2018 may be applied against future taxes, if the Company fails to generate U.S. taxable income prior to the expiration dates, the Company may not be able to fully utilize the net operating loss carryforwards to reduce future income taxes. 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 long history of cumulative losses in those jurisdictions, it believes it is appropriate to maintain a full valuation allowance on its net deferred tax asset at September 30, 2022 and December 31, 2021.

The Sahara entities have recorded a net deferred tax liability, which is primarily driven by the net deferred tax liability on the intangibles for which it does not have tax basis. This includes the deferred tax liability recorded during 2021 for the acquisition of Interactive Concepts. The Company does not 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 2009 to 2022 remain open to examination in the U.S. federal jurisdiction.  The tax years from 2020 to 2022 remain open to examination in the U.K.  Statutes of limitations vary in other immaterial jurisdictions.  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 recorded an exposure item of $82 thousand for its best estimate of the amount for which it will settle the exposure. This amount includes $24 thousand of income tax and $58 thousand of penalties and interest. The Company has not identified any other material uncertain tax positions at this time.