INCOME TAXES

12 Months Ended

Jan. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

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

Domestic and Foreign Pretax Income (Loss)	FY19			FY18
Domestic	$	(1,116	)	$	7,480
Foreign		4,597			863
Total	$	3,481		$	8,343

Income Tax Expense (Benefit)	FY19		FY18
Current:
Federal	$	45	$	600
State and other taxes		20		20
Foreign		1,667		1,325
	$	1,732	$	1,945
Deferred:
Domestic	$	290	$	5,955
Valuation allowance-deferred tax asset		-----		3
Foreign		-----		-----
		290		5,958
Total	$	2,022	$	7,903

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

	2019	2018
Statutory rate	21.00%	33.81%
State Income Taxes, Net of Federal Tax Benefit	6.89	2.27
Adjustment to Deferred	(0.92)	-----
Foreign Dividend and Subpart F Income	-----	(17.19)
Transition Tax (net of FTC from Transition Tax)	-----	26.53
Argentina Flow Through Loss	1.37	0.38
GILTI	16.85	-----
Permanent Differences	0.63	(1.32)
Valuation Allowance-Deferred Tax Asset	(24.46)	0.34
Foreign Tax Credit	24.46
Foreign Rate Differential	20.16
Rate Change	(5.63)	47.17
Other	(2.25)	2.74
Effective Rate	58.09%	94.73%

The tax effects of temporary cumulative differences which give rise to deferred tax assets at January 31, 2019 and 2018 are summarized as follows:

	2019	2018
Deferred tax assets:
Inventories	$849	$866
US tax loss carryforwards, including work opportunity credit*	4,290	4,411
Accounts receivable and accrued rebates	233	242
Accrued compensation and other	314	190
India reserves - US deduction	46	19
Equity based compensation	299	126
Foreign tax credit carry-forward	1,348	2,199
State and local carry-forwards	1,116	1,017
Argentina timing difference	32	37
Depreciation and other	59	90
Amortization	(193)	(174)
Brazil write-down	222	181
Allowance for Note Receivable - Brazil	-----	552
Deferred tax asset	8,615	9,756
Less valuation allowance	1,348	2,199
Net deferred tax asset	$7,267	$7,557

*The federal net operating loss (“NOL”) that is left after FY19 will expire after 1/31/2034 (20 years from the generated date of 1/31/2014). The credits will begin to expire after 1/31/2020 (10 years from the 1st carryover year generated date of 1/31/2010) and will fully expire after 1/31/2028.

The state NOLs will begin to expire after 1/31/2025 and will continue to expire at various periods up until 1/31/2038 when they will be fully expired. The states have a larger spread because some only carryforward for 15 years and some allow 20 years.

Tax Reform

On December 22, 2017, new federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law.  The 2017 Tax Cuts and Jobs Act (the Tax Act) reduces the federal corporate income tax rate to 21% from 35% effective January 1, 2018.  As a result of the Tax Act, we applied a blended U.S. statutory federal income tax rate of 33.811% in FY18.  The Tax Act requires us to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax (see below), re-measuring our US deferred tax assets as well as reassessing the net realizability of our deferred tax assets.  The Company completed this re-measurement and reassessment in FY18.  The rate change, along with certain immaterial changes in tax basis resulting from the 2017 Tax Act, resulted in a reduction of our net deferred tax asset to $7.6 million with related income tax expense of $5.1 million, thus dramatically increasing our effective tax rate in the fiscal year ended January 31, 2018. While the Tax Act provides for a modified territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The proposed regulations were not finalized as of January 31, 2019 and, as of this reporting date, remain in the proposal stage. Due to this uncertainty, it is difficult to predict the future impact, however, the Company does expect that the GILTI income inclusion will result in significant U.S. tax expense beginning in FY19. Re-measurement and reassessment of the GILTI tax as it is currently written resulted in a charge to tax expense of $0.6 million in FY19. The Company intends to account for the GILTI tax in the period in which it is incurred. Though this non-cash expense had a materially negative impact on FY19 earnings, the Tax Act also changes the taxation of foreign earnings, and companies generally will not be subject to United States federal income taxes upon the receipt of dividends from foreign subsidiaries. 

The BEAT provisions in the Tax Act pertain to companies with average annual gross receipts of $500 million for the prior 3-year period and eliminate the deduction of certain base-erosion payments made to related foreign corporations and impose a minimum tax if greater than regular tax. Based on current guidelines the Company does not expect the BEAT provision to have an impact on U.S. tax expense

Transition Tax

Upon enactment, there was a one-time deemed repatriation tax on undistributed foreign earnings and profits (the “transition tax”). This tax was assessed on the U.S. Shareholder’s share of the foreign corporation’s accumulated foreign earnings and profits that were not previously been taxed.  Earnings in the form of cash and cash equivalents was taxed at a rate of 15.5% and all other earnings and profits were taxed at a rate of 8.0%.  We recognized tax expense of $5,120,928 related to the transition tax in 2017.  However, foreign tax credits were used in the amount of $5,120,928 to fully offset this transition tax and the Company will not incur any cash outlay related to this tax. 

We previously considered substantially all of the earnings in our non-U.S. subsidiaries to be indefinitely reinvested outside the U.S. and, accordingly, recorded no deferred income taxes on such earnings.  At this time, the applicable provisions of the Tax Act have been fully analyzed and our intention with respect to unremitted foreign earnings is to continue to indefinitely reinvest outside the U.S. those earnings needed for working capital or additional foreign investment. As stated above, GILTI is recognized in the period it is incurred and is not considered with regard to deferred income tax on unremitted E&P.

Income Tax Audits

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. Returns for the years since FY16 are still open based on statutes of limitation only.

Chinese tax authorities have performed limited reviews on all Chinese subsidiaries as of tax years 2008 through 2015 with no significant issues noted and we believe our tax positions are reasonably stated as of January 31, 2019. Weifang Meiyang Products Co., Ltd. (“Meiyang”), one of our Chinese operations, was changed to a trading company from a manufacturing company in Q1 FY16 and all direct workers and equipment were transferred from Meiyang to Weifang Lakeland Safety Products Co., Ltd., (“WF”), another entity of our Chinese operation thereby reducing our tax exposure.

Lakeland Protective Wear, Inc., our Canadian subsidiary, is subject to Canadian federal income tax, as well as income tax in the Province of Ontario. Income tax returns for the 2014 fiscal year and subsequent years are still within the normal reassessment period and open to examination by tax authorities.

In connection with the exit from Brazil (Note 12), the Company claimed a worthless stock deduction which generated a tax benefit of approximately USD $9.5 million, net of a USD $2.2 million valuation allowance in FY16. While the Company and its tax advisors believe that this deduction is valid, there can be no assurance that the IRS will not challenge it and, if challenged, there is no assurance that the Company will prevail.

As mentioned above, it’s the Company’s intention is to reinvest outside the US those earnings needed for working capital or foreign investment. As a result of the transition tax, $5.0 million of foreign income was repatriated at the end of FY18. However, the Company has no intention to repatriate earnings with regards with GILTI.In the fiscal year ended January 31, 2019, no dividends were declared. It is the Company’s practice and intention to reinvest the earnings of our non-US subsidiaries in their operations with the exception of the dividend plan.

 Change in Valuation Allowance

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. The valuation allowance decreased approximately $0.9 million and $0.0 for the years ended January 31, 2019 and 2018, respectively.