Income Taxes

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The following note related to income taxes includes both continuing and discontinued operations. The components of income (loss) before provision for income taxes are as follows (in thousands):

	Years Ended September 30,
	2021			2020			2019
Domestic	$	(3,320	)	$	(18,652	)	$	916
Foreign		6,754			3,673			(4,648	)
	$	3,434		$	(14,979	)	$	(3,732	)

The components of the provision for income taxes are as follows (in thousands):

	Years Ended September 30,
	2021			2020			2019
Current:
Domestic federal	$	—		$	(239	)	$	—
Foreign		1,999			1,407			1,278
Foreign withholding taxes		292			201			94
Domestic state		(300	)		(59	)		58
Total current		1,991			1,310			1,430
Deferred:
Foreign		(65	)		(566	)		—
Total deferred		(65	)		(566	)		—
Total provision	$	1,926		$	744		$	1,430

The CARES Act, which was signed into law on March 27, 2020, included a provision for a five-year carryback of net operating losses. The Company has assessed the benefit of the provision and utilized a portion of the 2019 net operating loss carryback to offset income from 2018. The income tax provision as of and for the year ended September 30, 2020 reflects such impact.

Due to the tax treatment relating to the sales of SoLayTec and Tempress, we realized income tax benefits of $1.3 million and $11.1 million. We realized income tax expense of $0.2 million for the sale of R2D. The income tax benefits for SoLayTec and Tempress are reflected in our discontinued operations in 2019 and 2020, respectively. The income tax expense for R2D is reflected in our continuing operations in 2020. The income tax expense (benefit) is fully offset by a valuation allowance.

A reconciliation of actual income taxes to income taxes at the expected U.S. federal corporate income tax rate is as follows (in thousands, except percentages):

	Years Ended September 30,
	2021			2020			2019
Federal statutory rate		21.0	%		21.0	%		21.0	%
Tax expense (benefit) at the federal statutory rate	$	722		$	(3,146	)	$	(784	)
Effect of permanent book-tax differences		54			145			272
State tax provision		24			34			31
Valuation allowance for net deferred tax assets		842			3,775			1,682
Uncertain tax items		(276	)		(47	)		74
Tax rate differential		267			222			150
Other items		293			(239	)		5
	$	1,926		$	744		$	1,430

Deferred income taxes reflect the tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and deferred tax liabilities are as follows (in thousands):

	September 30, 2021			September 30, 2020
Deferred tax assets (liabilities):
Capitalized inventory costs	$	103		$	204
Inventory write-downs		815			991
Accrued warranty		78			53
Deferred profits		—			1
Accruals and reserves not currently deductible		1,827			2,913
Stock option expense		832			806
Federal net operating loss carryforwards		20,365			18,445
Foreign and state net operating losses		285			231
Book vs. tax depreciation and amortization		(1,724	)		(1,465	)
Foreign tax credits		1,207			—
Other deferred tax assets		135			120
Total deferred tax assets		23,923			22,299
Valuation allowance		(23,292	)		(21,733	)
Deferred tax assets, net of valuation allowance	$	631		$	566

Changes in the deferred tax valuation allowance are as follows (in thousands):

	Years Ended September 30,
	2021		2020
Balance at the beginning of the year	$	21,733	$	23,900
Additions (reductions) to valuation allowance		1,559		(2,167	)
Balance at the end of the year	$	23,292	$	21,733

The deferred tax valuation allowance increased by $1.6 million and decreased by $2.2 million for the years ended September 30, 2021 and 2020, respectively. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future income and tax planning strategies in making this assessment. We have established valuation allowances on substantially all net U.S. deferred tax assets, after considering all of the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, and determined it is not more likely than not that these assets will be realized. In 2020, we reversed a portion of the valuation allowance related to foreign deferred tax assets which we have determined will be utilized against net operating income in future years. In 2019, we reversed a portion of the valuation allowance related to net operating loss carryforwards which we had determined would be utilized against net operating income in the respective years. We will continue to monitor our cumulative income and loss positions in the U.S. and foreign jurisdictions to determine whether full or partial valuation allowances on net deferred tax assets are appropriate.

As of September 30, 2021, we have federal net operating loss carryforwards of approximately $13.0 million that expire at various times between 2031 and 2035. The utilization of those federal net operating losses is limited to approximately $0.8 million per year. Additionally, we have federal net operating loss carryforwards of approximately $84.0 million that have an indefinite carryforward period. The utilization of those federal net operating losses is limited to 80% of taxable income after 2021. We have no foreign net operating loss carryforwards as of September 30, 2021. We have approximately $22.0 million of state net operating loss carryforwards. As of September 30, 2021, we have approximately $1.2 million of Foreign Tax Credit carryforwards that expire in 2030 and 2031.

We have classified all of our liabilities for uncertain tax positions as income taxes payable long-term. Income taxes payable long-term also includes other items, primarily withholding taxes that are not due until the related

intercompany service fees are paid. A reconciliation of the beginning and ending amount of our unrecognized tax benefits is summarized as follows (in thousands):

	Years Ended September 30,
	2021			2020			2019
Balance at beginning of the year	$	1,225		$	1,272		$	1,198
Additions related to tax positions taken in prior    years		—			—			74
Reductions due to resolution of uncertain tax    position		(276	)		(47	)		—
Balance at the end of the year	$	949		$	1,225		$	1,272

Approximately $0.3 million of our total unrecognized tax benefits represents the amount that, if recognized, would favorably affect our effective income tax rate in future periods. We report accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized a net (benefit) expense for interest and penalties of $(0.1) million, $4,000 and $0.1 million for 2021, 2020 and 2019, respectively. Income taxes payable long-term on the Consolidated Balance Sheets includes a cumulative accrual for potential interest and penalties of $0.6 million and $0.8 million as of September 30, 2021 and 2020. We do not expect that the amount of our tax reserves for uncertain tax positions will materially change in the next 12 months other than the continued accrual of interest and penalties.

Amtech and one or more of our subsidiaries file income tax returns in China and other foreign jurisdictions, as well as the U.S. and various states in the U.S. We have not signed any agreements with the Internal Revenue Service, any state or foreign jurisdiction to extend the statute of limitations for any fiscal year. As such, the number of open years is the number of years dictated by statute in each of the respective taxing jurisdictions, but generally is from 3 to 5 years. These open years contain certain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenues and expenses, or the sustainability of income tax positions of Amtech and our subsidiaries.