INCOME TAXES

3 Months Ended

Jan. 31, 2023

INCOME TAXES

INCOME TAXES

12.  INCOME TAXES

Our provision for income taxes and effective tax rate is affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates, and other events that are not consistent from period to period, such as changes in income tax laws.

The Inflation Reduction Act of 2022 (the “Inflation Reduction Act” or “IRA”) was signed into law on August 16, 2022. The IRA provides for investment in clean energy, promotes reductions in carbon emissions, and extends select Affordable Care Act premium reductions. The IRA is paid for through the implementation of a 15% corporate minimum tax on corporations with over $1 billion of financial statement income, budget increases for the Internal Revenue Service, an excise tax on stock repurchases, and changes to Medicare rules.  We do not currently expect that the Inflation Reduction Act will have a material impact on our income taxes.

We recorded income tax expense during the first three months of fiscal 2023 of $0.6 million compared to $1.6 million for the same period in fiscal 2022. Our effective tax rate for the first three months of fiscal 2023 was 31%, compared to 32% in the corresponding prior year period. The year-over-year decrease in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates and a discrete item related to stock compensation.

Our unrecognized tax benefits were $173,000 as of January 31, 2023, and $171,000 as of October 31, 2022, and in each case included accrued interest.

We recognize accrued interest and penalties related to unrecognized tax benefits as components of income tax expense. As of January 31, 2023, the gross amount of interest accrued, reported in Accrued expenses, was approximately $35,000, which did not include the federal tax benefit of interest deductions.

We file U.S. federal and state income tax returns, as well as tax returns in several foreign jurisdictions. The statutes of limitations with respect to unrecognized tax benefits will expire between August 2024 and September 2024.

Currently, our subsidiary in Germany is under tax audit for fiscal years 2017 through 2021.