Note 12 - Income Taxes

12 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 12 — INCOME TAXES

The following information is provided for the years ended June 30:

(In thousands)	2022			2021
Components of income (loss) before income taxes:
United States	$	20,124		$	7,117
Foreign		(1,039	)		799
Income before income taxes	$	19,085		$	7,916
Provision for income taxes
U.S. Federal	$	3,586		$	2,425
Foreign		165			247
State and local		644			434
Total current		4,395			3,106
Deferred		(342	)		(1,058	)
Total provision for income taxes	$	4,053		$	2,048

(In thousands)	2022			2021
Reconciliation to federal statutory rate:
Federal statutory rate		21.0	%		21.0	%
State and local taxes, net of federal benefit		3.0			1.5
Foreign operations		-			1.0
Federal tax credits		(1.0	)		(1.5	)
Valuation allowance		-			(25.9	)
NY State Tax Credits		-			25.9
Transaction cost		-			3.5
Uncertain tax position activity		(0.3	)		(0.1	)
Stock-based compensation		(0.3	)		1.0
Tax rate changes		(1.4	)		(0.3	)
Other		0.2			(0.2	)
Effective tax rate		21.2	%		25.9	%

The components of deferred income tax assets and (liabilities) at June 30, 2022, and 2021 are as follows:

Components of deferred income tax assets and liabilities
(In thousands)	2022			2021
Uncertain tax positions	$	169		$	138
Reserves against current assets		1,110			936
Accrued expenses		2,596			3,348
Interest		-			927
Deferred compensation		1,195			514
Stock-based compensation		1,421			841
State net operating loss carryover and credits		310			624
Lease Liability		2,667			4,408
Canadian NOL		538
Goodwill, acquisition costs and intangible assets		-			-
U.S. Federal net operating loss carryover and credits		1,235			1,587
Deferred income tax asset before valuation allowance		11,241			13,323
Valuation allowance		(108	)		(108	)
Deferred income tax asset		11,133			13,215
Goodwill, acquisition costs and intangible assets		(3,519	)		(3,683	)
Depreciation		(2,205	)		(2,677	)
Right of Use Asset		(2,513	)		(4,299	)
Deferred income tax liability		(8,237	)		(10,659	)
Net deferred income tax asset	$	2,896		$	2,556

The Company has U.S. federal net operating loss carry forward deferred tax assets of $1.1 million and $1.5 million at June 30, 2022, and June 30, 2021, respectively. The increase of $1.4 million in fiscal 2021 was from the acquisition of JSI which has an unlimited carryforward period.  The remaining $0.1 million will expire over a three-year period beginning June 30, 2029. The Company has deferred tax assets for research and development credits of $0.1 million at both June 30, 2022, and June 30, 2021.  Utilization of the federal net operating losses and research and development credits are limited by Internal Revenue Code Section 382 but are expected to be realized before expiration.

The Company has Canadian net operating loss carry forward deferred tax assets of $0.5 million at June 30, 2022. The $0.5 million deferred tax asset was from the acquisition of JSI and has a 20 year carryforward period.

The Company has state net operating loss carryovers and tax credit deferred tax assets of $0.3 million and $0.6 million at June 30, 2022, and June 30, 2021, respectively. At June 30, 2021, there was $0.3 million of state net operating losses from the acquisition of JSI and $0.3 million other state net operating losses and tax credits. A valuation allowance of $0.1 million exists at June 30, 2022 against Oregon tax credits not expected to be used.  The Oregon credits are otherwise expected to expire over a 4-year period beginning June 30, 2027.

During fiscal year 2021, the Company eliminated the deferred tax asset and related valuation allowance for the New York tax credits of $2.1 million when the entity holding the New York credits was dissolved. There was no impact to the consolidated financial statements.

At June 30, 2022, tax, interest, and penalties, net of potential federal tax benefits, were $0.6 million, $0.3 million, and $0.2 million, respectively, of the total reserve for uncertain tax positions of $1.1 million. The entire uncertain tax position of $0.6 million, net of federal tax benefit, would impact the effective tax rate if recognized.

At June 30, 2021, tax, interest, and penalties, net of potential federal tax benefits, were $0.7 million, $0.3 million and $0.2 million, respectively, of the total reserve for uncertain tax positions of $1.2 million. The entire uncertain tax position of $0.7 million net of federal tax benefit, would impact the effective tax rate if recognized. The liability for uncertain tax position is included in Other Long-Term Liabilities.

The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Consolidated Statements of Operations. The Company recognized a $0.1 million net tax (benefit)/expense in both fiscal 2022 and fiscal 2021, related to the change in reserves for uncertain tax positions. The Company recognized interest net of federal benefit and penalties of ($8,000) and ($10,000), respectively, in fiscal 2022 and $32,000 and $19,000, respectively, in fiscal 2021. The reserve for uncertain tax positions is not expected to change significantly in the next twelve months. 

The tax activity in the liability for uncertain tax positions was as follows:

(In thousands)	2022			2021
Balance at the beginning of the fiscal year	$	682		$	607
Decreases - tax positions in prior period		(117	)		(52	)
Increase - tax positions in current period		82			49
Increases - tax positions in prior period		-			78
Settlements and payments		-			-
Lapse of statute of limitations		-			-
Balance at end of the fiscal year		647			682

The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax returns in several state and local jurisdictions, and also in Canada and Mexico. In general, the Company is no longer subject to U.S. Federal, state, and local tax examinations by tax authorities for fiscal years ending prior to June 30, 2019. Except that US tax years prior to June 30, 2019, are subject to exam to the extent of the US tax refunds generated from the carry back of the June 30, 2019, federal net operating loss.  The Company received notice that the IRS intends to examine the US tax year ended June 30, 2020, but the exam has not started.