7. INCOME TAXES

The provision for income taxes consists of the following:

(in thousands)	Year Ended December 31,
Income Tax Benefit	2020			2019
Current provision (benefit):
Federal	$	(1,385	)	$	(582	)
State		65			7
Foreign		6			(10	)
Related to UTP		20			26
		(1,294	)		(559	)

Deferred provision (benefit):
Federal		(62	)		(94	)
State		(3	)		(24	)
Foreign		(19	)		(13	)
		(84	)		(131	)

Total tax benefit	$	(1,378	)	$	(690	)

We have $4.6 million of net operating loss (“NOL”) carryovers and carrybacks which will begin to expire in 2025.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company is evaluating the impact of the CARES Act and expects that the NOL carryback provision of the CARES Act will result in a cash tax benefit to the Company.

Income (loss) before income taxes was earned in the following tax jurisdictions:

(in thousands)	Year Ended December 31,
Income (Loss) Before Income Taxes	2020			2019
United States	$	(6,222	)	$	(1,959	)
Spain		161			21
Canada		(204	)		(131	)
Australia		(7	)		(170	)
United Kingdom		(7	)		(354	)
TOTAL	$	(6,279	)	$	(2,593	)

The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:

Deferred income tax assets:	2020			2019
(in thousands)
Inventory	$	498		$	468
Stock-based compensation		63			51
Accounts receivable		4			5
Sales returns		105			119
Foreign currency translation gain/loss in OCI		323			359
Goodwill and other intangible assets amortization		5			33
Net operating loss		665			459
Accrued expenses		170			-
Leases		250			145
Other		1			-
Total deferred income tax assets		2,084			1,639
Less: valuation allowance		(1,320	)		(382	)
Total deferred income tax assets, net of valuation allowance	$	764		$	1,257

Property and equipment depreciation	$	682		$	740
Accrued expenses		-			90
Total deferred income tax liabilities		682			830

Net deferred tax asset (liability)	$	82		$	427

We are required to reduce deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not 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 are deductible. We determined a $0.9 million increase to the valuation allowance for deferred income tax assets was necessary as of December 31, 2020, as compared to 2019. Our evaluation considered, among other things, the nature, frequency, and severity of losses, forecasts of future profitability and the duration of statutory carryforward periods.

Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, the difference in tax rates for loss carryback periods, foreign income/loss positions, expenses that are nondeductible for tax purposes, the change in our valuation allowance associated with our deferred tax assets, and differences in tax rates. Below is a reconciliation of our effective tax rate from the statutory rate:

	Year Ended December 31,
	2020			2019
Statutory rate – Federal U.S. income tax		21	%		21	%
State and local taxes		3	%		0	%
Permanent book/tax differences		(2	)%		(6	)%
Difference in tax rates in loss carryback periods		8	%		3	%
Change in valuation allowance		(10	)%		(5	)%
Rate differential on UTP reversals		0	%		13	%
Other, net		2	%		1	%
Effective rate		22	%		27	%

We file a consolidated U.S. income tax return as well as state tax returns on a consolidated, combined, or stand-alone basis, depending on the jurisdiction. We are no longer subject to U.S. federal income tax examinations by tax authorities for years prior to the tax year ended December 2016. Depending on the jurisdiction, we are no longer subject to state examinations by tax authorities for years prior to the December 2015 and December 2016 tax years.

A reconciliation of the beginning and ending amount of uncertain tax positions (“UTP”) is as follows:

Fiscal Year	2020		2019
UTP at beginning of the year	$	296	$	1,416
Gross increase (decrease) to tax positions in current period		77		(1,146	)
Interest expense		20		26
Lapses in statute		-		-
UTP at end of year	$	393	$	296

We file tax returns in the U.S. and a limited number of foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local, or non-U.S. income tax examinations for years before 2015. Included in the balance of UTPs as of December 31, 2020 and 2019 are $0.1 million and $0.1 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of UTPs as of December 31, 2020 and 2019 are $0.3 million and $.02 million, respectively, of tax benefits that, if recognized, would result in adjustments primarily to deferred taxes.