Income Taxes

12 Months Ended

Jan. 31, 2020


NOTE 10			INCOME TAXES

The reconciliation of income tax computed at the federal statutory rate to the Company's effective income tax rate was as follows:


	For the years ended January 31,
	2020		2019		2018
Tax at U.S. federal statutory rate	21.0	%	21.0	%	33.8	%
Impact of the Tax Cuts and Jobs Act	—		—		(0.1)
State and local income taxes, net of U.S. federal tax benefit	0.8		1.7		1.6
Tax credit for research activities	(4.6)		(2.3)		(1.8)
Tax benefit on qualified production activities	—		—		(3.0)
Tax benefit from foreign-derived intangible income	(1.1)		(0.8)		—
Tax benefit on insurance premiums	(1.2)		(0.8)		(1.3)
Change in uncertain tax positions	0.3		—		0.1
Foreign tax rate difference	—		0.1		—
Impact of settlement of stock-based awards	(3.3)		(2.4)		1.2
Change in valuation allowances	0.8		—		—
Other, net	0.8		(0.8)		—
Effective Tax Rate	13.5	%	15.7	%	30.5	%

The decrease in the effective tax rate for fiscal 2020 was driven primarily by the decrease in current year profitability that resulted in a higher R&D tax credit as a percentage of pre-tax income.

The decrease in the effective tax rate for fiscal 2019 compared to fiscal 2018 was primarily due to the decrease in the federal statutory tax rate pursuant to the TCJA and the recognition of net favorable discrete tax items.

The expense (benefit) for income taxes consists of:


	For the years ended January 31,
	2020		2019		2018
Current expense (benefit):
Federal	$	3,401	$	6,910	$	17,057
State	416		1,099		1,549
Foreign	98		735		148
	3,915		8,744		18,754
Deferred expense (benefit):
Federal	1,271		1,018		(613)
State	204		73		(13)
Foreign	31		(138)		(161)
	1,506		953		(787)
Income tax expense	$	5,421	$	9,697	$	17,967

Deferred Tax Assets (Liabilities)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities were as follows:


	As of January 31,
	2020		2019
Deferred tax assets:
Accounts receivable	$	286	$	147
Inventories	1,152		1,110
Accrued vacation	778		695
Insurance obligations	205		187
Warranty obligations	454		200
Postretirement benefits	2,042		1,800
Uncertain tax positions	445		487
Share-based compensation	1,927		1,834
Tax loss carryforwards	3,929		—
Leases	962		—
Other accrued liabilities	952		913
	13,132		7,373
Valuation allowance	(630)		—
	12,502		7,373
Deferred tax (liabilities):
Depreciation and amortization	(18,086)		(8,498)
Leases	(962)		—
Other	(518)		(518)
	(19,566)		(9,016)
Net deferred tax asset (liability)	$	(7,064)	$	(1,643)

Uncertain Tax Positions

A summary of the activity related to the gross unrecognized tax benefits (excluding interest and penalties) is as follows:


	For the years ended January 31,
	2020		2019		2018
Gross unrecognized tax benefits at beginning of year	$	2,228	$	2,216	$	2,110
Increases in tax positions related to the current year	338		415		426
Increases in tax positions related to prior years	45		—		—
Decreases as a result of lapses in applicable statutes of limitation	(435)		(403)		(320)

Gross unrecognized tax benefits at end of year	$	2,176	$	2,228	$	2,216

The total unrecognized tax benefits (including interest and penalty) that, if recognized, would affect the Company's effective tax rate were $2,162, $2,183, and $2,143 as of January 31, 2020, 2019, and 2018, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. At January 31, 2020, 2019 and 2018, accrued interest and penalties were $430, $442, and $418, respectively. The Company does not expect any significant change in the amount of unrecognized tax benefits in the next fiscal year.

As of January 31, 2020, the Company had a Canada net operating loss ("NOL") carryforward of approximately $3,001 due to the acquisition of a majority interest in DOTin the current fiscal year. A deferred tax asset has been recorded for this NOL carryforward in the amount of $630. However, due to uncertainty in future taxable income of DOT, a valuation allowance in the amount of $630 has been recorded.

Additional Tax Information

The Company files tax returns, including returns for its subsidiaries, with various federal, state, and local jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. As of January 31, 2020, federal tax returns filed in the U.S. for fiscal years ended January 31, 2017 through January 31, 2019 remain subject to examination by federal tax authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31, 2014 through January 31, 2019 remain subject to examination by state and local tax authorities. International jurisdictions have open tax years varying by location beginning in fiscal 2014.

Pre-tax book income (loss) for the U.S. companies and the foreign subsidiaries was $44,328 and $(4,294), respectively. As of January 31, 2020, the Company has no deferred tax liability recognized relating to the Company’s investment in foreign subsidiaries where the earnings have been indefinitely reinvested. The TCJA generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and as a result, the accumulated undistributed earnings would only be subject to other taxes, such as withholding taxes and state income taxes, on distribution of such earnings. No additional withholding or income taxes have been provided for any remaining undistributed foreign earnings, as it is the Company’s intention for these amounts to continue to be indefinitely reinvested in foreign operations.