INCOME TAXES

12 Months Ended

Jan. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

8. INCOME TAXES

The provision for income taxes is based on the following pretax income (loss):

	FY 12									FY 1
Domestic and Foreign Pretax Income (Loss)	Total			Continuing Operations			Discontinued Operations			Total		Continuing Operations		Discontinued Operations
Domestic	$	(1,810,731	)	$	(1,810,731	)	$	——		$	480,392	$	480,392	$	——
Foreign		334,627			2,649,586			(2,314,959	)		1,145,449		1,806,793		(661,344	)
Total	$	(1,476,104	)	$	838,855		$	(2,314,959	)	$	1,625,841	$	2,287,185	$	(661,344	)

	FY 12									FY 11
Income Tax Expense (Benefit)	Total			Continuing Operations			Discontinued Operations			Total			Continuing Operations			Discontinued Operations
Current:
Federal	$	(304,615	)	$	(304,615	)	$	——		$	727,722		$	727,722		$	——
State and other taxes		——			——			——			36,887			36,887			——
Foreign		198,221			198,221			——			924,925			1,163,009			(238,084	)
Deferred		(992,885	)		(147,925	)		(844,960	)		(1,035,692	)		(1,035,692	)		——
Total	$	(1,099,279	)	$	(254,319	)	$	(844,960	)	$	653,842		$	891,926		$	(238,084	)

The following is a reconciliation of the effective income tax rate to the Federal statutory rate:

	2012			2011
Statutory rate		34.0	%		34.0	%
State income taxes, net of Federal tax benefit		2.5	%		1.5	%
Permanent differences		(2.8	)%		2.0	%
VAT tax charge with no tax benefit		0.0			33.1	%
Foreign tax rate differential*		37.8	%		(34.9	)%
Various tax credits		3.0	%		——
Other		——			4.5	%
Effective rate		74.5	%		40.2	%

* The foreign rate differential is very high due to losses in India, Chile and Argentina treated as pass through entities for U.S. tax purposes, the VAT tax charge in Brazil and the elimination of intercompany profit in inventory, all of which serve to reduce the consolidated pretax income.

The tax effects of temporary differences which give rise to deferred tax assets at January 31, 2012 and 2011, are summarized as follows:

	2012		2011
Deferred tax assets:
Inventories	$	959,971	$	1,295,484
U.S. tax loss carry-forwards, including work opportunity credit		569,376		0
Accounts receivable and accrued rebates		81,922		27,022
Accrued compensation and other		176,323		267,377
India inventory reserves–U.S. deduction		514,712		(0	)
Equity based compensation		447,220		320,543
Foreign tax credit carry-forward		156,741		124,543
State and local carry-forwards		126,161		128,119
Depreciation and other		246,246		133,853
Brazil carryforward resulting from goodwill write-offs		709,000		——
Net deferred tax asset	$	3,987,671	$	2,296,941

Tax Audit

Income Tax Audit/Change in Accounting Estimate

The Company is subject to US federal income tax, as well as income tax in multiple US state and local jurisdictions and a number of foreign jurisdictions. The Company’s federal income tax returns for the fiscal years ended January 31, 2003, 2004, 2005 and 2007 have been audited by the Internal Revenue Service (“IRS”). The Company has received a final “No Change Letter” from the IRS for FY07 dated August 20, 2009. The Company has received notice from the IRS on March 21, 2011, that it will shortly commence an audit for the FY09 tax return.

Our three major foreign tax jurisdictions are China, Canada and Brazil. According to China tax regulatory framework, there is no statute of limitations on fraud or any criminal activities to deceive tax authorities. However, the general practice is going back five years, and general practice for records maintenance is 15 years. Our China subsidiaries were audited during the tax year 2007 for the tax years 2006, 2005 and 2004. Those audits were conducted in the ordinary course of business. China tax authorities did not perform tax audits in the ordinary course of business during tax years 2008, 2009, 2010, 2011 or during the current year as of current filing date. China tax authorities performed a fraud audit, but the scope was limited to the fraud activities found in late FY09 as discussed more fully in Note 15 to the Company’s Form 10-K for the year ended January 31, 2010. This audit covered tax years from 2003 through 2008. We reached a settlement with the Chinese Government in January 2009. China tax authorities have performed limited reviews on all China subsidiaries as of tax years 2008, 2009, 2010 and 2011 with no significant issues noted. We believe our tax positions are reasonably stated as of January 31, 2012.

Lakeland Protective Wear, Inc., our Canadian subsidiary, follows Canada tax regulatory framework recording its tax expense and tax deferred assets or liabilities. As of this statement filing date, we believe the Company’s tax situation is reasonably stated, and we do not anticipate future tax liability for fiscal year ended January 31, 2012 or prior years.

The Company’s Brazilian subsidiary is currently under a tax audit, which raised some issues regarding the tax impact related to the merger held in 2008 and the resulting goodwill resulting from the structure which was set up at the Company's Brazilian counsel's suggestion. The Company has not received any formal communication from the authorities. There is no formal claim received, and there may not be such a claim in any case. However, this structure is relatively common in acquisitions of Brazilian operations made by non-Brazilian companies. In general, acquisitions with this structure have survived challenge by the taxing authorities in Brazil. The cumulative amount of tax benefits recognized on the Company’s books through January 31, 2012, resulting from the tax deduction of the goodwill amortization is approximately USD$790,000. This results from the goodwill on the Brazilian books which, for Brazilian tax purposes, is eligible for tax write-off over a five year period dating from November 2008.